1 

\ 


The  S 


TOCK    EXCHANGES 


OF 


London,  Paris,  and  New  York 


A  COMPARISON  ' 


GEORGE   RUTLEDGE   GIBSON 


^A  OF  TSB^^S 

'ITHI7EESIT7: 


NEW  YORK  &  LONDON 

G.  P.  PUTNAM'S    SONS 

3%  luucherbochcr  IJrcss 
1889 


^} 


&*& 


Liq^Srt 


COPYRIGHT   BY 

GEORGE   RUTLEDGE  GIBSON 

1888 


Press  of 

G.  P.  Putnam's  Sons 

New  York 


The  warlike  power  of  every  country  depends 
on  their  Three  per  Cents.  If  Caesar  were  to  re- 
appear upon  earth  Wettenhall's  (Stock  Ex- 
change) List  would  be  more  important  than  his 
Commentaries ;  Rothschild  would  open  and  shut 
the  temple  of  Janus  ;  Thomas  Baring,  or  Bates, 
would  probably  command  the  Tenth  Legion, 
and  the  soldiers  would  march  to  battle  with 
loud  cries  of  Scrip  and  Omnium  reduced,  Con- 
sols and  Caesar. — Sydney  Smith. 


CONTENTS. 


CHAPTER  PAGBT 

I. — The  Stock  Exchange  as  a  Factor  in 

Political  Economy  i 

II. — Speculation 6 

III. — London — The  Origin  of  the  Public  Debt 

and  the  Stock  Exchange   .    .    .15 
IV. — London — The  Modern  Stock  Exchange,  22 
V. — London — The  Modern  Stock  Exchange 

{Continued} 29 

VI. — London — Trading  "  for  the  Account  " 
and  Clearing  House   for   Shares   in 
the  Stock  Exchange    .         .         .         -37 
VII. — Paris  —  The    Bourse:    Its    Origin    and 

Growth 50 

VIII. — Paris — The  Bourse — Parquet  and  Cou- 
lisse  58 

IX. — New  York — Early  History  of  the  Stock 

Exchange 67 

X. — New   York  —  The   Stock   Exchange   of 

To-Day 73 

XI. — New  York — The  Commanding  Influence 

of  the  Stock  Exchange       .         .         .85 
XII. — Technical  Terms  of  Stock  Exchanges,     95 
XIII. — New    York — The    Consolidated    Stock 
and   Petroleum    Exchange  :  Its  Ori- 
gin and  Growth 107 

XIV. — New    York — Methods    of    Business    on 

the  Consolidated  Exchange       .        .114 
XV. — The  So-Called  Bucket-Shops  .        .120 

V 


LIST    OF  ILLUSTRATIONS. 


Bank  of  England  ....  Fro?itispiece 
Stock  Exchange  of  London.  Capel  Court  .  24 
Stock  Exchange  of  London.  Shorter's  Court,  30 
Stock  Exchange  of  London.     Interior  .       42 

The  Paris  Bourse 58 

The    New    York    Stock    Exchange.       Broad 

Street 74 

The     New     York     Consolidated     Exchange. 

Broadway       .         .         .         .-  .         .108 


Note. — The  publishers  beg  to  state  that  they  made  an  effort  to 
secure  from  the  authorities  of  the  Stock  Exchange  of  London  per- 
mission to  have  made  a  photograph  of  the  interior  of  the  building. 
This  permission  was,  however,  refused,  and  they  have  therefore 
been  compelled  to  use  for  their  illustration  an  old  print,  the  only 
view  now  extant,  and  which  fortunately  represents  very  nearly  the 
appearance  of  the  interior  to-day. 


r*f*  OF  THE     x 

CHAPTER  I. 

THE   STOCK  EXCHANGE   AS  A   FACTOR  EST  POLITICAL 
ECONOMY. 

WORKS  on  history  and  political  economy- 
are  singularly  deficient  in  the  treatment 
of  Stock-Exchange  business,  and  in  fact  com- 
pletely ignore  its  important  relations  to  the 
financial  mechanism.  Literary  publications  rarely 
enter  into  the  consideration  of  this  topic,  which 
is  foreign  to  the  thoughts  and  classical  educa- 
tion of  most  authors.  Financial  journals  address 
their  articles  to  the  relatively  narrow  circle 
which  is  familiar  with  stock-markets  and  finan- 
cial affairs.  It  therefore  happens  that  the 
Stock  Exchange,  which  is  a  most  potent  factor 
in  the  financial  world,  and  one  which  power- 
fully affects  wide  interests,  is  imperfectly  under- 
stood. Doubt]  ess  there  are  many  persons  who 
regard  the  Stock  Exchange  merely  as  a  noisy 
congregation  of  brokers  who  gamble  in  the 
securities  of  governments  and  joint-stock  com- 


2  The  Stock  Exchange  as  a 

panies,  under  the  guise  of  legitimate  business. 
Deeper  insight  into  the  functions,  practices,  and 
character  of  the  Stock  Exchanges  in  the  three 
great  cities  of  London,  Paris,  and  New  York 
may  induce  a  broader  and  happier  conception 
of  their  dignity  and  utility. 

It  would  not  be  hazarding  much  to  say  that 
those  who  teachl  political  economy  in  our 
schools,  or  write  treatises  on  it  for  publication, 
are  seldom  familiar  with  the  operations  of  Stock 
Exchanges.  It  follows  that,  in  discussing  and 
wrangling  over  the  question  of  the  evils  or 
advantages  of  an  adverse  "  balance  of  trade  " 
between  nations,  they  are  likely  to  consult 
chiefly  the  statistics  of  imports  and  exports  of 
commodities,  merchandise,  and  specie,  without 
trying  to  trace  the  more  elusive  but  very 
palpable  movement  of  financial  securities.  The 
Stock  Exchange  is  the  deus  ex  machina  in  the 
drama  of  commerce. 

During  the  first  eight  months  of  1888,  to 
illustrate,  the  balance  of  trade,  commercially, 
was  ninety-two  million  dollars  against  the 
United  States,  but  during  that  time  we  ex- 
ported only  about  twenty-two  millions  in 
specie,  leaving  seventy  millions  unaccounted 
for.     We  should  have  been  compelled  to  ship 


Factor  in  Political  Economy.  3 

this  seventy  millions  in  specie  to  settle  the 
international  account  had  not  foreign  capital 
purchased  liberally  of  our  railway  bonds  and 
stocks.  The  balance  of  trade  is  nominally 
always  against  England,  but  instead  of  losing 
wealth,  as  the  figures  might  suggest,  that 
country  is  constantly  growing  richer  by  returns 
on  investments  made  long  ago  wherever  com- 
merce thrives.  Unless  the  ebb  and  flow  of  secu- 
rities between  great  financial  centres  be  studied 
and  traced,  the  figures  of  international  trade  bal- 
ances may  be  misconstrued  or,  indeed,  wholly 
misunderstood.  Political  economy  has  at  best, 
hardly  established  itself  on  the  safe  basis  of  an 
incontrovertible  science,  and  it  cannot  afford  to 
omit  the  facts  and  figures  of  Stock  Exchanges 
in  making  up  its  conclusions  as  to  balances  of 
trade,  interest  on  capital,  and  the  production  and 
distribution  of  wealth. 

As  will  be  more  fully  brought  out  later,  the 
Exchanges  of  the  world  are  instruments  of 
enormous  economic  value  in  subdividing  capital 
and  directing  its  employment  in  the  great  works 
of  commerce  and  industry. 

The  United  States  has  been  a  vast  and  pro- 
lific field  for  foreign  capital,  and  English  so- 
licitude for  and  interest  in   American  affairs 


L 


4  The  Stock  Exchange  as  a 

centres  in  the  Stock  Exchange  of  New  York. 
The  American  visiting  Great  Britain,  on  his 
arrival  at  Queenstown  or  Southampton,  eagerly 
seizes  the  latest  paper  to  see  what  has  trans- 
pired at  home  since  he  sailed  on  his  voyage 
thither.  He  finds,  perchance,  a  brief  paragraph 
or  two  about  a  national  political  convention,  a 
strike  among  railway  employes,  or  a  severe 
storm,  with  no  news  of  American  society,  art, 
or  literature.  There  is  one  thing,  however, 
which  he  sees  spread  out  in  satisfactory 
detail,  and  that  is  the  market  reports,  especially 
the  quotations  of  railway  securities.  That  is 
what  most  interests  our  British  cousins  in 
their  "kin  beyond  the  sea." 

Per  contra,  when  the  Wall-Street  man  goes 
down  to  his  office  his  first  inquiry  is  for  the  two- 
o'clock  prices  on  the  Stock  Exchange  of  London, 
which,  owing  to  the  difference  in  time  of  five 
hours,  are  received  before  ten  o'clock  in  New 
York. 

The  quotations  of  American  stocks,  with  the 
accompanying  price  of  Consols  and  the  Bank 
of  England  rate,  inform  him  of  the  temper  of 
European  capital  and  the  status  of  politics, 
commerce,  and  credit  abroad  as  translated  into 
figures  by  the  keenest  financiers,  besides  serving 


Factor  hi  Political  Economy.  5 

as  a  guide  to  his  judgment  of  values  here.  The 
largest  private  banking  institutions  in  London, 
Paris,  Berlin,  Vienna,  and  New  York,  combine 
the  functions  of  banking  and  brokerage  in  such 
intimate  relations  that  it  is  hard  to  say  where 
the  one  begins  and  the  other  ends.  Between  the 
extremes  of  a  deposit,  discount  and  exchange 
business,  and  that  of  buying  and  selling  bonds 
and  shares  on  the  Stock  Exchanges  of  the  world 
on  commission,  they  negotiate  loans  for  govern- 
ments  and  corporations,  reorganize  properties, 
convert  them  from  private  into  joint  stock  own- 
ership,  and  are  intermediaries  in  all  the  great 
movements  of  capital  from  one  country  to 
another.  The  community  of  financial  interest 
between  Great  Britain  and  the  United  States, 
in  particular,  is  one  of  the  most  effective  agents 
for  the  promotion  of  peace  and  good-will  be- 
tween the  nations. 

The  electric  current  which  courses  along-  the 
Atlantic  cable  binds  Capel  Court  and  Wall 
Street  into  the  brotherhood  of  capital  as  well 
as  of  kindred  and  speech. 


CHAPTER  II. 

SPECULATION. 

DURING  the  past  century  panics  have 
recurred  in  cycles  of  about  ten  years, 
and  many  superficial  observers  attribute  them 
wholly  to  unhealthy  speculation  or  gambling, 
and  condemn  Stock  Exchanges  as  breeding- 
places  of  disaster. 

Now,  this  word  "  speculation "  has  a  bad 
name,  and  it  may  be  worth  while  to  see  what 
it  really  implies  or  describes.  Evidences  of 
public  debt,  and  the  shares,  bonds,  and  deben- 
tures of  incorporated  or  chartered  companies  are 
easily  transferred,  are  actively  dealt  in  on  the 
Exchanges  and  frequently  are  footballs  for 
speculation,  especially  before  their  values  are 
well  established.  Risk  and  uncertainty  are  the 
two  qualities  essential  to  speculative  transac- 
tions, and  just  so  fast  and  so  far  as  they  are 
eliminated,  just  so  fast  and  so  far  they  cease  to 
invite  speculation.  All  must  alike  deplore  the 
frequent  instances  where  the  haste  to  get  rich  in 


Speculation.  7 

speculative  markets  has  involved  innocent  per- 
sons in  loss  and  ruin,  or  tempted  men  to  betray 
their  trusts.  But  "  the  evil  is  passing  and  the 
good  remains." 

While  panics  have  injured  the  pride  and 
purse  of  individuals,  and  for  the  moment  pros- 
trated the  energies  of  the  industrial  world,  they 
have  not  arrested  the  progress  of  material  civil- 
ization, but,  indeed,  seem,  in  a  measure,  to  be 
merely  an  outgrowth  from  it.  The  extension  of 
the  credit  system,  which  is  one  of  the  refine- 
ments of  modern  commerce;  the  introduction 
of  labor-saving  machinery,  which  rapidly  dis- 
places labor  and  deranges  values,  are  two  of  the 
potent  causes  of  commercial  crises.  The  subdi- 
vision of  the  title  of  ownership  of  such  great 
engines  of  progress  as  manufacturing,  shipping, 
mining,  banking,  trading,  telephone,  telegraph, 
cable,  water,  and  gas  companies,  is  indispensable 
to  their  organization  and  operation.  The  for- 
tune of  no  individual  would  be  ample  to  set 
these  forces  into  motion  on  a  gigantic  scale.  As 
an  illustration,  the  small  streams  of  isolated  and 
unused  capital  which  trickle  into  the  savings- 
banks  of  California,  are  returned  in  the  waters 
of  an  irrigating  canal  which  wash  out  the  aurif- 
erous gravel  or  convert  into  gardens  the  sandy 


8  Speculation. 

desert.  The  Stock  Exchanges  of  the  world  offer  a 
standing  reward  to  men  of  talent  and  ingenuity 
everywhere,  to  discover  new  opportunities  and 
to  suggest  untried  experiments  for  the  employ- 
ment of  capital,  with  a  prospect  of  more  than 
an  investor's  rate  of  interest. 

Not  long  ago  steam  was  applied  to  locomotion 
by  land  and  sea,  and  electricity  to  the  transmis- 
sion of  thought  and  speech.  Their  introduction 
was  an  experiment ;  they  were  at  first  a  specu- 
lation, and  not  an  investment.  Speculation  is 
truly  the  handmaid  of  enterprise,  and  the  two 
are  so  closely  associated  that  one  cannot  be  cur- 
tailed without  crippling  the  other. 

The  person  who  buys  more  shares  than  his 
capital  will  permit  him  to  pay  for,  is  derisively 
called  a  "  speculator."  But  does  this  act  essen- 
tially differ  from  the  practices  of  what,  by  com- 
mon consent,  are  called  legitimate  commercial  un- 
dertakings ?  The  merchant  buys  in  advance  of 
his  immediate  wants  and  in  excess  of  them  and 
of  his  capital.  The  real-estate  owner  pledges  his 
property  to  procure  money  to  improve  it  or 
to  buy  more,  expecting  to  sell  at  a  profit.  But 
the  critic  here  says :  "  On  the  Stock  Exchange 
speculators  go  so  far  as  to  sell  what  they  do 
not   possess,"    or   in   Stock-Exchange   parlance 


Speculation.  9 

they  "  go  short."  But  how  about  the  contrac- 
tor who  agrees  to  build  a  house  before  he  owns 
a  plank,  or  brick,  or  nail ;  or  who  agrees  to  build 
a  railway  before  he  buys  a  cross-tie,  a  rail,  or 
a  shovel  ?  How  about  the  manufacturer  who 
sells  his  sheetings  and  his  steel  rails,  before  the 
cotton  is  grown  or  the  ore  extracted  from  the 
mine  ?  Even  China,  our  commercial  antipodes, 
sells  its  products  to  us  ahead  of  their  pro- 
duction. The  fact  is,  that  the  element  of  specula- 
tion constantly  comes  more  prominently  into  the 
plans  of  the  whole  mercantile  world.  Those 
who  produce  or  buy  only  what  they  need  from 
day  to  day,  jog  along  as  did  the  canal  boats  and 
stage  coaches  of  our  ancestors.  The  great  man- 
ufacturers and  merchants  of  to-day  must  cast 
the  horoscope  of  coming  conditions  and  read  its 
prophecy  aright  or  be  overcome  by  more  presci- 
ent rivals.  They  must  anticipate  and  discount 
the  future,  and  become  speculators  in  the  high- 
est acceptation  of  the  word. 

As  the  current  of  progress  rolls  on,  innocent 
persons  are  occasionally  caught  in  the  eddies, 
and  others  are  engulfed  in  the  whirlpool  rapids 
of  speculation ;  but  the  stream  of  prosperity 
flows  steadily  on. 

As  steam  is  explosive,  electricity  deadly;  as 


io  Speculation. 

tuberculosis  lurks  iu  milk,  typhoid  fever  in 
water,  and  trichinae  in  meat,  so  the  stock-market 
is  full  of  manholes  and  pitfalls.  It  is  equally- 
true  that  statistics  disclose  the  lamentable  fact 
that  95  per  cent,  of  all  business  men  fail  at 
some  period  of  their  lives.  All  kinds  of  grist 
come  to  the  mill,  and  since  it  requires  an  infal- 
lible judgment  invariably  to  detect  the  chaff  of 
fraud  and  folly,  all  classes  are  alike  exposed  to 
peril  in  business.  Financial  storms  may  mani- 
fest themselves  with  a  greater  cyclonic  fury 
within  the  precincts  of  the  Stock  Exchange,  but 
they  are  equally  destructive  in  commercial  and 
industrial  circles.  Bonds  and  shares  are  the 
most  mercurial  and  sensitive  forms  which  capi- 
tal assumes,  but  as  a  sudden  wave  of  heat 
registers  its  arrival  more  quickly  on  a  bulb  of 
mercury  than  on  a  bar  of  iron,  so  the  former  more 
quickly  recovers  its  normal  temperature.  It  is 
so  with  Stock-Exchange  markets,  which  are  first 
to  feel  a  financial  barometic  depression,  but  like- 
wise the  first  to  record  a  better  atmosphere, 
while  real  estate,  for  instance,  is  the  last  to  de- 
tect, as  well  as  the  last  to  recover. 

The  Stock  Exchange  and  banks  of  the  large 
cities  are  closely  allied,  and  together  constitute 
the  money-market.      Banks  cluster  about  the 


Speculation.  1 1 

Stock  Exchange,  for  bonds  and  shares  are  among 
the  most  desirable  collateral  securities  for  loans, 
and  the  testimony  of  bankers  would  easily  be 
that  losses  from  this  source  show  a  much  smaller 
percentage  than  in  commercial  paper. 

The  value  of  shares  is  distinctly  enhanced  by 
"  listing  "  them,  as  Wall  Street  would  say,  or  by 
"granting  a  quotation,"  in  the  language  of 
Capel  Court.  With  law  supreme,  paper  titles 
to  property  are  as  secure  as  its  personal  posses- 
sion, and  when  these  shares  become  publicly 
known  in  an  open  market,  the  value  which  they 
there  acquire  may  be  regarded  as  the  judgment 
of  the  best  intelligence  concerning  them.  If 
there  is  merit,  it  becomes  known  to  more  people 
with  capital  than  if  the  property  be  merely  held 
in  private  ownership,  or  dealt  in  outside  the  Ex- 
change. Thus  we  see  that  a  railway,  a  brewery, 
a  bank,  a  piece  of  land,  or  a  mine  is  mobilized, 
so  to  speak,  and  acquires  greater  negotiability  on 
its  introduction  to  an  Exchange,  the  arena  of 
speculation.  The  banker  will  loan  more  money 
on  it,  and  more  people  will  buy  in  it,  because 
there  is  always  a  ready  market  in  case  they 
wish  to  change  that  investment.  Here  is  where 
the  Stock  Exchange  does  a  good  service  to  capi- 
tal, and  this  is  why  its  existence  is  a  constant 


1 2  Speculation. 

incentive  to  promoters,  inventors,  and  men  of 
original  and  progressive  ideas. 

Every  occurrence  in  the  commercial  world  is 
communicated  to  its  nerve-centres — the  Stock 
Exchanges, — where  the  importance  or  bearings 
of  the  event  are  at  once  estimated.  In  earlier 
days,  carrier-pigeons,  or  private  expresses  in 
post  haste  brought  to  the  stock-market  the 
news  which  now  is  borne  by  the  electric 
telegraph.  Brokers  and  speculators  vie  with 
each  other  for  the  fastest  means  of  procuring 
and  transmitting  information.  Representatives 
of  brokers,  in  times  of  critical  interest,  follow 
armies  in  the  field,  shadow  diplomats,  sit  in  legis- 
lative halls,  visit  mines,  workshops,  and  farms, 
each  eager  to  procure  advance  informatiou.  A 
silver  bill  in  Washington,  a  railway  strike  in  the 
Northwest,  a  war  of  rates  between  trunk  lines, 
yellow  fever  in  Florida,  a  bank  failure  in  San 
Francisco,  a  revolution  in  Mexico,  floods  in 
Hungary,  a  drought  in  India,  a  panic  in  Buenos 
Ayres,  an  advance  in  the  Bank-of-England 
rate,  a  peaceful  speech  by  the  Prime-Minister,  a 
riot  in  the  streets  of  Paris,  an  inflammatory 
article  in  a  St.  Petersburgh  paper,  the  death  of 
an  Emperor  in  Germany,  the  imposition  of  a  new 
tariff  in  Austria,  the  success  of  a  large  loan  in 


Speculation.  1 3 

Amsterdam,  and  so  on  ad  infinitum;  all  are 
noted  in  the  Exchanges  of  the  world,  and  some 
interests  are  correspondingly  influenced  upon  re- 
ceipt of  the  news.  There  are  three  news  agencies 
in  New  York  whose  duties  are  to  collect  and 
distribute  just  such  information  as  this,  and 
brokers  before  whom  it  is  laid  are  at  once  com- 
pelled to  estimate  its  correctness  and  value  and 
apply  it  instantly  to  the  stock-market.  Kapidity 
of  reasoning  and  quickness  of  decision  are  the 
two  qualities  most  essential  to  the  stock-broker 
and  stock-operator. 

Many  leading  brokers,  particularly  in  Amer- 
ica, issue  a  printed  daily,  weekly,  or  monthly 
resume  of  the  shifting  phases  of  the  market, 
discussing  its  underlying  conditions,  as  well  as 
surface  indications.  These  letters  go  to  their 
clients,  who  are  thus  informed  of  the  conclusions 
of  observers,  who  in  their  interest  are  seeking 
to  discover  the  hidden  springs  which  move 
prices  and  values.  These  productions  are  as 
broad  in  their  grasp  as  those  of  financial  jour- 
nalistic writers,  and  they  have  perhaps  the  ad- 
vantage of  being  written  by  men  who  are  in 
close  and  constant  touch  with  affairs.  Narrow- 
ness of  view  there  may  be  by  those  who  frequent 
the   Stock   Exchange,   but   the  broad  horizon 


1 4  Speculation. 

which  knows  not  the  boundaries  of  race,  em- 
pire, or  religion,  must  be  swept  by  the  vision 
of  those  who  would  succeed  there  in  a  large 
way. 


CHAPTER  III. 

LONDON THE   ORIGIN    OF   THE   PUBLIC    DEBT  AND 

THE   STOCK   EXCHANGE. 

LONDON,  which  holds  the  purse-strings  of 
the  world,  is,  of  course,  the  seat  of  its 
most  powerful  Stock  Exchange.  While  its  begin- 
nings are  misty  they  are  not  remote,  for  only 
well  inside  of  two  hundred  years  have  there 
been  any  opportunities  for  the  exercise  of  a 
stock-broker's  vocation. 

William  III.  was  the  founder  of  the  English 
debt,  of  the  Bank  of  England  (1694),  and  of 
national  fiscal  honor.  Charles  I.  had  seized  the 
gold  deposited  in  the  Mint.  Charles  II.  had 
closed  the  Exchequer,  confiscating  one  million 
three  hundred  thousand  pounds  sterling,  and  as 
Hallam  says,  "  The  nation  had  sunk  to  the 
nadir  of  its  prosperity."  William  acknowl- 
edged the  debt  so  infamously  incurred  and 
repudiated  by  his  predecessors,  and  thereafter 
paid  an  annual  interest  upon  it.  While  the 
government  was  thus  learning  the  secret  of  ex- 

15 


1 6  The  Origin  of  the  Public  Debt 

tracting  money  from  the  people  by  lawful 
methods,  and  sowing  the  seed  of  the  great  har- 
vest of  modern  national  debt,  merchants  were 
discovering  the  advantages  of  exclusive  charters 
for  commercial  enterprises.  By  purchase  or  by 
royal  favor  the  East  India,  the  Hudson  Bay, 
and  other  companies  established  themselves  in 
monopolies  in  the  17th  century,  and  became 
the  forerunners  of  that  host  of  trading  com- 
panies which  pushed  English  commerce  into  the 
remotest  corners  of  the  globe.  With  the  estab- 
lishment of  the  public  debt  and  national  integ- 
rity, and  the  successful  introduction  of  these 
great  commercial  organizations,  the  stock-broker 
makes  his  first  appearance  on  the  stage  of  Eng- 
lish history. 

There  follows  a  period  between  1716  and 
1720  when  England  and  France  became  a  prey 
to  a  speculative  mania,  which  is  unexampled  in 
financial  history.  The  celebrated  Mississippi 
scheme  in  France  and  the  South  Sea  Bubble  in 
England  were  the  most  extraordinary  delusions 
that  credulous  cupidity  ever  produced.  The 
imagination  of  all  classes  from  lords  to  lackeys 
was  captivated  by  a  financial  necromancy  as  ex- 
travagant as  the  professed  magic  of  the  philoso- 
pher's stone.    "  A  uri  sacra  fames,11  the  accursed 


And  the  Stock  Exchange.  1 7 

thirst  for  gold,  is  a  passion  of  the  race  and  has 
been  inseparable  from  human  life  in  all  its  vary- 
ing phases  of  intelligence.  The  dreams  of  ava- 
rice made  a  slave  of  the  intelligence  and  judg- 
ment of  men,  and  the  shares  of  bubble  compa- 
nies rose  with  fatal  celerity  to  a  fatal  height. 
When  the  rude  awakening  came  the  whole 
financial  fabric  crumbled  in  one  common  ruin. 
But  the  infatuation  of  the  people  and  its  sad 
denouement  taught  a  lesson  to  the  commercial 
world  which  thereafter  led  to  greater  prudence 
and  exacter  methods.  Business  is  not  a  mathe- 
matical science,  but  experience  teaches  lessons 
in  finance  as  in  every  thing  else. 

Parliament  in  1720  passed  an  act  prohibiting 
the  formation  of  companies  except  by  special 
charter,  and  this  law  was  not  repealed  until 
1826. 

Stock-brokers  and  Stock  Exchanges,  as  we 
know  them  to-day,  are  very  different  from  their 
prototypes  two  hundred  years  ago,  but  all  pro- 
fessions have  alike  emerged  from  the  crudities 
and  imperfections  of  an  earlier  time.  The 
Royal  Exchange,  which  was  erected  during  the 
reign  of  Elizabeth,  as  a  meeting-place  for  mer- 
chants, was  the  original  rendezvous  of  the  first 
stock-brokers.     After  a  few  years,  or  in  1698, 


1 8  The  Origin  of  the  Public  Debt 

the  dealers  in  shares  abandoned  the  Royal  Ex- 
change and  took  up  their  abode  in  Change 
Alley,  a  locality  which  they  made  famous.  In 
those  days  coffee-houses  were  the  trysting- 
places  for  social,  political,  and  financial  coteries, 
and  Jonathan's  and  Garraways'  in  Change  Alley 
became  the  home  of  the  stock-brokers.  In  1701 
they  were  not  esteemed  as  the  most  useful  mem- 
bers of  the  community,  as  may  be  inferred  from 
the  criticism  of  a  contemporary  writer.  He 
said  :  "  They  can  ruin  men  silently,  undermine 
and  impoverish,  fiddle  them  out  of  their  money 
by  the  strange,  unheard-of  engines  of  interest, 
discount,  transfers,  tallies,  debentures,  shares, 
projects,  and  the  devil  and  all  of  figures  and  hard 
names."  Thomas  Guy,  the  founder  of  Guy's 
Hospital,  was  one  of  those  who  amassed  a  for- 
tune in  the  transactions  which  are  thus  so  ve- 
hemently condemned. 

The  records  of  the  Stock  Exchange  now  in 
its  archives  do  not  go  back  of  1798,  but  it 
appears  from  outside  sources  that  in  Change 
Alley  there  was  no  organization,  it  being  merely 
a  common  meeting-place  without  any  restric- 
tions or  limitations  whatever.  About  1773  the 
scene  shifted  to  the  The  Stock  Exchange  Coffee- 
House,  Threadneedle  Street,  where  a  sixpence 


And  the  Stock  Exchange.  1 9 

was  charged  for  admission,  though  the  Bank  of 
England  set  aside  the  rotunda  of  the  Bank  for 
dealings  in  shares,  debentures,  and  public  funds, 
where  a  large  traffic,  for  a  time,  was  carried  on. 

During  the  latter  part  of  the  eighteenth,  and 
the  early  part  of  the  nineteenth  centuries,  the 
public  debt  was  swollen  by  the  American  and 
Napoleonic  wars,  and  the  subsidies  paid  so 
freely  by  Pitt  to  foreign  states.  In  1775,  at  the 
commencement  of  the  American  Revolution,  the 
British  debt  was  £126,842,811,  and  in  1815,  at 
the  end  of  the  French  and  American  wars,  the 
debt  stood  at  £861,039,049.  The  price  of  Con- 
sols fluctuated  violently  in  those  days,  rising 
from  57  in  1784  to  97  in  1792,  declining  to  47£ 
in  1798.  In  1802  they  were  79,  in  1803  50J, 
etc.  From  1797  to  1819  specie  payments  were 
suspended,  which  added  an  element  of  specula- 
tion to  business  of  all  descriptions.  In  1816, 
Bank-of-England  notes  showed  as  much  as  16f 
per  cent,  discount,  in  gold.  The  increasing  debt 
and  wide  variations  in  its  market  value  naturally 
brought  profit  to  brokers,  whose  business  it  was 
to  buy  and  sell  the  public  funds ;  besides,  war 
always  opens  speculative  opportunities.  There- 
fore it  is  not  surprising  to  learn  that  under  this 
stimulus  the  Stock  Exchange  of  London  reached 


\ 


20  The  Origin  of  the  Public  Debt 

such  a  state  of  prosperity,  and  importance  as  to 
justify  a  new  building.  On  May  18,  1801,  the 
corner-stone  of  its  present  structure  was  laid  in 
Capel  Court,  and  in  March,  1802,  the  Exchange, 
which  then  numbered  500  members,  occupied  its 
new  quarters. 

In  the  early  part  of  the  century  Nathan 
Mayer  Rothschild  was  one  of  the  giants  "  on 
'Change,"  and  it  was  there  he  achieved  his 
greatest  triumphs  after  establishing  the  London 
house  of  Rothschild. 

In  those  days  the  funds  were  subject  to 
violent  fluctuations,  and  the  issue  of  peace  or 
war,  victory  or  defeat,  was  the  decisive  in- 
fluence on  values.  This  was  before  the  era  of 
telegraph  and  steam  or  the  present  systematic 
development  of  the  postal  and  express  service. 
Enterprise  then  involved  personal  fatigue  and 
often  heavy  expense,  but  it  was  in  this  that  lay 
much  of  Rothschild's  success.  One  signal  in- 
stance of  this  was  his  own  personal  journey  to 
the  field  of  Waterloo,  where  he  felt  the  stakes 
were  too  great  to  justify  his  reliance  on  agents 
or  couriers.  He  witnessed  this  battle  of  the 
Titans,  saw  that  Napoleon  was  defeated,  that 
the  Allies  had  won,  and  instantly  made  his 
way  to  Brussels,  thence  by  carriage  to  Ostend ; 


And  the  Stock  Exchange,  2 1 

by  bribing  a  hardy  seaman  with  two  thousand 
francs  he  secured  a  private  passage  to  Dover  in 
the  midst  of  a  tempest,  and  thence  rode  on  to 
London,  where,  the  following  morning,  looking 
most  dejected,  he  stationed  himself  in  his  favor- 
ite place  in  the  Stock  Exchange.  Brokers  known 
often  to  represent  him  were  open  sellers  of  the 
funds,  whilst  he  quietly  bought  heavily  through 
others.  He  finally  gave  out  the  news,  beating 
the  government  expresses  and  the  speculative 
world,  and  amassed  a  handsome  fortune  out  of 
this  grand  coup. 

The  annals  of  the  Stock  Exchange  in  those 
days  are  meagre,  but  they  show  that  operators 
were  exposed  to  hoaxes  and  canards  of  every 
description.  False  rumors  are  now  often  put 
into  circulation  to  affect  values,  but  the  rapid 
means  of  communication  in  our  time  permit  an 
immediate  refutation  and  hence  forbid  serious 
injury.* 


CHAPTEE  IV. 

LONDON THE  MODEKN  STOCK  EXCHANGE. 

AFTER  the  return  of  the  disbanded  armies 
of  Europe  to  the  pursuits  of  civil  life,  at 
the  end  of  the  Napoleonic  wars,  there  was  a  re- 
vival of  industry  that  amounted  to  its  creation. 
The  age  of  steam,  electricity,  and  mechanical 
invention  had  dawned,  and  "swords  were  beaten 
into  ploughshares,  and  knives  into  pruning- 
hooks."  Projects  for  the  acquisition  of  wealth 
multiplied,  but  so  many  of  them  were  visionary 
and  impracticable  that  in  1826  a  day  of  reckon- 
ing came.  The  panic  of  that  year  only  cleared 
the  decks  for  action,  however,  and  it  was  not 
long  before  a  fresh  industrial  movement  was 
under  way.  This  in  its  turn  was  arrested  in 
1836  in  England,  and  in  1837  in  the  United 
States,  only  to  be  shortly  renewed  on  an  in- 
creasing scale.  Ten  years  later  the  most  re- 
markable period  of  speculative  industrial  enter- 
prise of  the  century  reached  its  climax  in  Eng- 
land, in  what  was  commonly  known  as  "  the 

22 


The  Modern  Stock  Exchange.  23 

railway  mania  of  1845."  The  sums  authorized  to 
be  expended  by  Acts  of  Parliament  on  railway 
enterprises  were :  in  1843,  £3,861,285  ;  in  1844, 
£17,870,361;  in  1845,  £60,824,088;  in  1846, 
£160,026,224;  in  1847,  £40,397,395 ;  in  1848, 
£14,620,471;  in  1849,  £3,155,332,  or  over 
£300,000,000  (say  $1,500,000,000)  in  seven 
years.1  Prior  to  1844  one  tenth  of  the  esti- 
mated cost  of  a  railway  had  to  be  deposited 
before  the  bill  for  its  promotion  could  pass, 
but  in  that  year  this  deposit  was  reduced  to 
one  twentieth. 

At  this  juncture  occurred  the  triumph  of 
Cobden's  principles,  the  conversion  of  the  great 
Tory  minister,  Sir  Robert  Peel,  the  abolition 
of  the  Corn  Laws,  the  Irish  famine,  succeeded 
by  a  panic  in  the  spring  of  1847.  There 
had  been  a  great  drain  of  gold  to  purchase 
food  supplies  abroad,  and  the  want  of  currency 
was  so  great  that  advances  could  not  be  ob- 
tained even  on  silver  bullion.  By  some  the 
crisis  was  attributed  to  the  Bank  Restriction 
Act  of  1844,  which  prevented  the  Bank  of  Eng- 
land, with  £9,000,000  in  its  vaults,  from  furnish- 
ing relief.  In  October,  1847,  the  operation  of 
this  act  was  suspended,  and  confidence  was  im- 

1  Francis's  History  of  the  Bank  of  England. 


24  London. 

mediately  restored.  The  speculative  railway 
mania  was  responsible  for  some  of  the  financial 
distress,  but  by  no  means  for  all  of  it.  Next 
follows  the  panic  of  1857,  when  specie  pay- 
ments in  the  United  States  and  the  Bank  Act 
in  England  were  suspended.  In  1861  the 
United  States  was  plunged  into  the  great  war 
of  secession,  causing  another  suspension  of  specie 
payments,  but  no  general  bankruptcy.  In  1866 
there  occurred  in  England  one  of  the  worst 
panics  of  modern  times,  it  being  essentially  a 
credit  panic,  as  distinguished  from  the  mercan- 
tile crises  of  1847  and  1857.  The  rapid  growth 
of  the  "  limited-liability  "  companies  under  the 
laws  of  1862  and  previous  years  are  charged 
with  much  of  the  mischief  of  this  collapse. 
Great  houses  like  Overend  &  Gurney,  Morton, 
Peto,  &  Co.,  went  down  with  a  crash.  The  fall  of 
securities  on  the  Stock  Exchange  of  London,  as 
given  on  high  authority,  was  one  hundred  million 
pounds  sterling,  and  relief  did  not  come  until  the 
Bank  Act  was  again  suspended.  In  1873  the  fail- 
ure of  Jay  Cooke  &  Co.,  attended  by  widespread 
ruin  in  financial  and  industrial  circles  in  America, 
and  the  panic  in  the  spring  of  1884,  precipitated 
by  the  failure  of  the  Marine  Bank  of  New  York 
City,  are  fresh  in  public  memory,  and  need  not 
be  recounted. 


STOCK   EXCHANGE   OF   LONDON.      CAPEL   COURT, 


«?-<v>fi 


The  Modern  Stock  Exchange.  25 

These  vicissitudes,  and  that  host  of  unnamed 
events  in  England  and  abroad  which  have 
marked  the  growth  of  wealth  during  the 
past  fifty  years,  greatly  augmented  speculative 
opportunities  and  expanded  the  volume  of 
transactions  to  enormous  proportions. 

To-day  the  interests  of  the  Stock  Exchange 
are  more  varied  and  cosmopolitan  than  that  of 
any  other  set  of  men  in  the  world.  If  it  has 
not  bought  and  sold  the  earth,  the  title-deeds 
which  have  passed  through  its  hands  represent 
an  empire  of  wealth,  over  which  Croesus  would 
be  too  poor  to  preside. 

The  Bank  of  England  is  the  apex  of  a  vast 
pyramid  of  share  capital,  resting  upon  the 
broad  basis  of  the  world's  commerce,  and  almost 
every  atom  of  the  mass  is  weighed,  assayed,  and 
a  valuation  stamped  upon  it  by  the  Stock  Ex- 
change of  London.  The  immense  tide  of  traffic 
that  beats  up  against  the  Bank  of  England,  the 
Royal  Exchange,  and  the  Stock  Exchange  is 
but  emblematic  of  England's  commercial  power. 
An  observer  has  said  that  the  sidewalks  in  that 
vicinity  are  "  islands  of  retreat  from  the  mael- 
strom of  vehicles  "  which  crowd  this  the  busiest 
spot  on  the  globe.  The  Bank,  which  covers  an 
entire  block  and  an  area  of  three  acres,  in  most 
part  is  only  two  stories  in  height,  but  in  appear- 


26  London. 

ance  it  is  the  most  substantial  banking  struc- 
ture in  any  city,  indeed  a  veritable  fortification 
or  Gibraltar  of  security.  The  Capel  Court 
entrance  to  the  Stock  Exchange  looks  out  upon 
the  eastern  front  of  the  Bank,  on  Bartholomew 
Lane,  but  the  other  entrances  on  Throgmorton 
Street  and  Old  Broad  Street  are  more  thronged. 
The  Stock  Exchange  is  not  one  of  the  "  sights  "  of 
London,  as  its  exterior  is  inconsequential  and  al- 
most undistinguishable  from  contiguous  build- 
ings, and  its  interior  is  not  open  to  public  view. 
Unlike  the  Bourse  in  Paris,  and  the  Stock  Ex- 
change in  New  York,  there  is  no  gallery  for  spec- 
tators. The  building  was  wholly  rebuilt  in  1 853, 
and  has  expanded  to  meet  the  increasing  demands 
upon  it,  but  with  no  well-defined  architectural 
purpose,  so  that  its  blind  passage-ways,  wind- 
ing stair-cases,  and  narrow  closed  doorways 
make  it  something  of  a  puzzle  to  a  stranger. 
The  main  room  is  octagonal  in  form,  about  68 
feet  in  diameter,  with  an  iron  and  glass  dome 
110  feet  in  height  from  the  floor  to  the  top 
of  the  cupola.  Its  quarters  are  cramped,  and 
it  strikes  an  American  that  they  ought 
to  tear  down  the  entire  structure  and  erect 
one  commensurate  with  the  dignity  and 
present  requirements  of  the  institution.     There 


The  Modern  Stock  Exchange.  2  7 

are,  however,  two  obstacles  to  this :  first, 
English  preference  for  dinginess  and  the  respec- 
tability of  age,  rather  than  spick-and-span  archi- 
tecture ;  and  second,  the  nature  of  the  owner- 
ship of  the  building.  It  belongs  to  a  proprie- 
tary company,  and  not  to  the  "  House,"  as  the 
general  membership  of  the  Exchange  is  denom- 
inated. Though  only  recently  so,  no  one  can 
be  a  shareholder  in  the  company  unless  he  be  a 
member  of  the  Exchange,  but  a  person  may  be 
a  member  of  the  Exchange  and  not  be  a  share- 
holder. The  interests  may  not  exactly  conflict, 
but  they  are,  to  say  the  least,  not  identical,  and 
it  is  a  question  if  they  be  equitable.  The  an- 
nual dues  of  members  range  between  twenty 
and  thirty  guineas,  depending  on  the  date  of 
their  admission ;  and  the  entrance  fees  of  new 
members  vary  from  .£315  for  an  outsider  to 
£131  5s.  for  those  who  have  been  clerks  for 
four  years.  These  payments  all  go  to  the  pro- 
prietary company  as  a  rental.  This  does  not 
quite  describe  the  fact,  for  the  proprietary  com- 
pany appoint  and  pay  all  officials  in  charge  of 
the  building,  and  superintend  it.  This  property 
is  mortgaged  to  the  extent  of  £240,000,  bearing 
four-per-cent.  interest,  and  the  public  may  hold 
these  debentures.     The  capital  of  the  company 


28  London. 

is  20,000  shares  paid  up  <£12  each,  and  in  the 
year  1886-7  they  paid  a  dividend  of  <£4  lbs.,  or 
nearly  40  per  cent,  on  the  amount  paid  up. 
The  entire  property  is  now  worth  over  five 
millions  of  dollars.  The  shares  are  owned  by 
about  one  thousand  persons,  some  of  whom  ac- 
quired them  before  the  present  restriction, 
which  prevents  persons  not  members  of  the 
Stock  Exchange  from  becoming  shareholders, 
was  adopted. 


CHAPTER  V. 

LONDON THE  MODEKN  STOCK  EXCHANGE. 

{Continued) 

THE  present  membership  of  "  The  Stock 
Exchange  of  London  "  (its  proper  title) 
is  about  2,850,  which  is  double  the  number 
(1,433)  in  1870.  If  the  interests  of  share- 
holders and  subscribers  could  in  some  way  be 
amalgamated  it  would  give  a  value  to  member- 
ship which  would  afford  security  to  that  extent 
to  engagements  between  members,  besides  in- 
suring a  greater  community  of  interest  and 
more  solidarity  to  the  institution.  There  is 
no  limit  to  membership,  which  may  rise  or  fall, 
accordingly  as  business  is  found  profitable  or 
otherwise.  In  the  Bourse  at  Paris  and  in  the 
Exchanges  of  New  York,  memberships  are  fixed 
in  number,  and  a  candidate  must  procure  a 
"  seat ,J  by  purchase  and  transfer  from  a  retir- 
ing member  before  he  can  be  elected.  In  Lon- 
don, on  the  contrary,  the  applicant  addresses  the 
Secretary,  announcing  his  wish  to  be  admitted  a 

29 


30  London, 

member  of  the  Stock  Exchange  for  the  year, 
commencing  on  the  25th  of  March,  18 — ,  upon 
the  terms  of,  and  under  and  subject  in  all  re- 
spects to  the  Rules  and  Regulations,  etc.  He 
further  states :  "  I  am  a  British  subject  and  of 
age ;  I  am  (married  or  single)  ;  my  residence  is 

;  my  office  is ;  my  bankers  are ; 

I  am  not  engaged  in  any  business  except  such 
as  is  transacted  at  the  Stock  Exchange,  nor  am 
I  a  clerk  in  any  public  or  private  establishment 
unconnected  with  the  Stock  Exchange,  nor  a 
member  of  or  subscriber  to  any  other  institu- 
tion in  which  dealings  in  stocks  or  shares  are 
carried  on."     Accompanying  this  is  a  document 

which  reads :  "  We  recommend  Mr.  as  a 

fit  person  to  be  admitted  a  member  of  the 
Stock  Exchange  ;  and  in  case  he  shall  be  pub- 
licly declared  a  defaulter  within  four  years  from 
the  date  of  his  admission  we,  each  of  us,  hereby 
engage  to  pay  his  creditors,  upon  application, 
the  sum  of  five  hundred  pounds,  to  be  applied 
in  discharge  of  the  said  defaulter's  debts  in  the 
Stock  Exchange."  This  must  be  signed  by 
three  sponsors  who  have  themselves  been  mem- 
bers for  four  years.  Assuming  them  to  be 
good,  all  those  having  dealings  with  the  new 
member   during  the   ensuing  four  years  have 


STOCK    EXCHANGE   OF    LONDON.      SHORTER  S    COURT. 
(Where  American  stocks  are  dealt  in  M  after  hours.") 


^A*"  OF  THK^<$5 

[UWBXtSITTJ 


The  Modern  Stock  Exchange.  3 1 

an  aggregate  security  of  fifteen  hundred  pounds, 
but  thereafter  no  security  whatever,  on  account 
of  his  membership.  If  the  applicant  has  for 
four  years  been  a  clerk  in  the  Stock  Exchange 
only  two  recommenders  are  required,  to  the  ex- 
tent of  three  hundred  pounds  each.  No  appli- 
cant is  admissible  if  he  be  engaged  as  principal 
or  clerk  in  anv  business  other  than  that  of  the 
Stock  Exchange,  or  if  his  wife  be  engaged  in 
business.  He  must  have  been  a  citizen  of  Great 
Britain,  either  native  or  naturalized,  for  two 
years.  The  Committee  of  General  Purposes, 
consisting  of  thirty  members,  is  elected  annually, 
and  they  elect  from  amongst  themselves  a 
Chairman,  and  Deputy-Chairman,  and  from  the 
list  of  Stock-Exchange  members  they  select  a 
Secretary.  Francis  Levien,  Esq.,  has  for  many 
years  occupied  this  post  with  singular  ability 
and  fidelity.  He  is  the  repository  of  all  the 
traditions,  customs,  practices,  precedents,  of  the 
written  and  unwritten  law  and  history  of  the 
Stock  Exchange  of  London,  in  the  same  sense 
that  Geo.  W.  Ely,  Esq.,  Secretary  of  the  New 
York  Stock  Exchange,  and  Charles  G.  Wilson, 
President  of  the  Consolidated  Stock  Exchange 
of  New  York,  are  the  authority  on  all  such 
questions  in  New  York.     It  usually  happens 


32  London. 

that  every  large  institution  annually  returns  to 
office  some  one  who  is  regarded  as  an  encyclo- 
paedia of  general  information  on  its  affairs. 

The  "  Committee  for  General  Purposes  "  in  the 
Stock  Exchange  of  London  annually  re-elect 
the  entire  list  of  members,  unless  for  good  cause 
some  one  or  more  should  fail  to  pass.  This 
feature  is  peculiar,  but  cannot  be  too  strongly 
commended.  It  is  a  power  subject,  of  course,  to 
abuse  by  a  member  of  the  Committee  exercising 
his  influence  to  defeat  a  perfectly  worthy  candi- 
date, but  happily  the  malice  of  individuals  does 
not  often  prevail.  High  character  and  inflexible 
rectitude  among  members  is  necessary  to  inspire 
and  merit  public  confidence,  and  they  are  also 
indispensable  in  the  inter-relations  of  members. 
It  must  be  remembered  that  enormous  transac- 
tions in  all  Exchanges  are  entered  into  in  the 
most  hurried  manner,  frequently  closed  by  a 
nod  or  gesticulation,  without  written  contract, 
witnesses,  notarial  acknowledgement,  or  calm 
comparison,  and  in  the  din  and  confusion  of  ex- 
cited markets.  Transactions  are  based  absolute- 
ly on  the  confidence  of  man  in  man,  and  the 
power  of  discipline  possessed  by  this  London 
Committee  is  salutary,  even  though  necessity 
seldom  requires  its  exercise.   There  is  a  provision 


The  Modern  Stock  Exchange,  33 

in  the  Stock  Exchange  of  London,  which  is  simi- 
lar to  the  Bourse  in  Paris,  but  quite  unlike  the 
Exchanges  in  New  York,  whereby  authorized 
clerks  may  be  admitted,  with  power  to  deal  and 
bind  their  principals,  and  unauthorized  clerks, 
with  merely  the  privilege  of  assisting  their  em- 
ployers. A  list  of  clerks  is  posted  with  the 
names  of  their  employers,  and  this  can  be  re- 
ferred to  at  pleasure.  There  are  also  a  number 
of  members  of  the  Exchange  who  are  employed 
as  clerks  by  other  members,  but  so  long  as  they 
are  in  the  service  of  their  fellow-members  they 
are  prohibited  from  doing  any  business  in  their 
own  name  or  account. 

One  of  the  marked  peculiarities  of  the  Stock 
Exchange  of  London  is  the  distinction  between 
those  who  act  as  agents  for  the  public,  and 
who  are  technically  called  "  brokers,"  and 
those  who  do  business  on  their  own  account, 
and  are  described  as  "  dealers  "  or  "  jobbers." 
It  is  estimated  that  about  one  third  of  the 
entire  membership  are  brokers,  one  third 
dealers,  and  one  third  clerks  to  other  members. 
The  custom  of  the  Exchange  forbids  any 
member  from  acting  in  the  double  capacity  of 
broker  and  jobber,  and  prohibits  partnerships 
between  the  two  classes,  and  also  with  any  person 


34  London, 

not  a  member  of  the  Exchange.  In  the  Bourse  at 
Paris,  all  agents  de  Change  are  strictly  forbidden 
to  trade  on  their  own  account.  In  the  Stock 
Exchanges  of  New  York  there  is  a  large  class  of 
members  who  operate  for  their  own  account. 
They  are  called  "  room-traders  "  or  "  scalpers," 
whose  profits  or  losses  consist  in  quick  turns 
made  during  the  day,  the  interest  that  they  have 
overnight,  or  over  Sunday,  being  usually  very 
small.  They  endeavor  to  detect  the  momentary 
influences  and  run  of  orders  "  going  short  "  or 
"  buying  long  "  without  reference  to  what  they 
may  think  the  ultimate  course  of  prices  will  be. 
In  New  York,  room- traders  sometimes  have 
orders  to  execute  for  friends,  though  they  do 
not  court  that  kind  of  business.  Commission 
brokers  in  New  York  may  occasionally  trade  on 
their  own  account,  no  regulations  preventing  it, 
and  all  members  alike  join  in  the  groups  as- 
signed to  different  active  stocks  in  making  a 
market  by  open  bids  and  offers. 

In  the  Stock  Exchange  of  London,  however, 
"  dealers "  are  by  custom  required  to  make  a 
price  at  which  they  will  buy  and  another  at 
which  they  will  sell,  so  that  if  a  broker  there 
receives  a  commission  from  his  client  to  buy 
Lake    Shore    shares,   for  instance,   he   asks   a 


The  Modern  Stock  Exchange.  35 

dealer  for  the  quotation.  If  he  replies  96-96J-, 
that  means  that  he  will  pay  96  or  sell  at  96J 
to  the  extent  of  one  hundred  shares,  which  is 
the  rule  in  American  shares.  In  British  rail- 
ways ten  shares  is  the  unit,  and  it  may  here 
be  said  that  all  shares  to  be  a  proper  de- 
livery in  London  must  be  in  ten-share  certifi- 
cates. The  bulk  of  the  business  is  done  in  this 
way,  and  brokers  as  a  rule  buy  from  and  sell  to 
dealers  of  established  reputation  rather  than 
with  each  other.  This  does  not  permit  the  free 
market  we  have  in  New  York,  nor  the  same 
closeness  of  price  that  is  made  here,  where 
stocks  can  frequently  be  bought  and  sold  in 
large  amounts  at  the  same  price.  Here  a  record 
is  kept  of  the  transactions,  the  stock  list  each 
day,  showing  pretty  closely  the  number  of 
shares  traded  in.  In  London  and  Paris  these 
lists  do  not  indicate  the  volume  of  business, 
merely  giving  quotations  as  they  may  be  marked 
by  brokers,  on  a  public  bulletin  hanging  in  the 
Exchange,  and  consequently  not  accurate  indices 
of  the  course  and  scope  of  the  market.  In  both 
those  markets,  particularly  in  London,  there  is  a 
secrecy  and  a  disposition  to  conceal  operations, 
which  is  a  striking  contrast  with  the  frank  and 
public  manner  of  conducting  the  business  in  the 


36  London. 

United  States.  Why  members  of  the  Stock 
Exchange  should  not  be  merged  into  a  homo- 
geneous mass,  and  why  their  operations  should 
not  be  conducted  on  the  principle  of  an  auction, 
are  not  apparent  to  an  American. 

The  Bourse  in  Paris  and  the  Stock  Exchange 
in  London  have  a  horror  of  printer's  ink  and  pub- 
licity, which  expresses  itself  in  their  rule  forbid- 
ding members  to  advertise.  The  result  of  this  is 
that  irregular  brokers  and  what  in  this  country 
are  called  "  bucket  shops  "  advertise  and  no  doubt 
secure  commissions  that  would  go  to  members 
of  the  Stock  Exchange  if  they  were  permitted 
to  solicit  business.  Prior  to  1886  the  City  of 
London  required  all  brokers  to  take  out  a 
license,  and  the  result  was  persons  outside  of  the 
Stock  Exchange  posed  before  the  public  as 
licensed  brokers.  The  semi-official  endorsement 
of  the  Corporation  of  London  proved  to  be  mis- 
leading to  the  public,  and  the  law  was  repealed. 
The  Secretary  of  the  Stock  Exchange  publishes 
a  notice  in  the  daily  papers  warning  the  public 
that  members  of  the  Exchange  are  not  allowed 
to  advertise. 


CHAPTER  VI. 

LONDON TRADING     "  FOR     THE      ACCOUNT"      AND 

CLEARING    HOUSE    FOR    SHARES  IN  THE  STOCK 
EXCHANGE. 

BEFORE  any  scrip,  shares,  bonds,  or  de- 
bentures of  any  description  can  be  quoted 
in  the  official  lists,  or  be  in  any  manner  recog- 
nized by  the  Exchange,  application  must  be 
made  in  behalf  of  such  issues,  and  the  proper 
committee  will  require  full  information  as  to 
the  bona-Me  character  of  the  enterprise;  that 
it  is  of  sufficient  magnitude  to  warrant  dealings, 
that  two  thirds  of  the  whole  nominal  capital 
have  been  applied  for  and  unconditionally  al- 
lotted to  the  public ;  that  its  issues  are  legal  in 
form  and  authority,  etc.  It  is  apropos  to  re- 
mark that  Stock  Exchanges  guard  the  public, 
in  so  far  as  they  are  able,  in  declining  to  admit 
to  quotations  the  questionable  enterprises  of 
"  shady  "  promoters,  but  they  do  not  in  any 
manner  thereby  indicate  any  opinion,  personal 
or  official,  as  to   the  value  of  such  issues,  or 

37 


38  London. 

their  real  genuineness  or  soundness.  That  is 
entirely  beyond  their  province,  and  persons 
buying  issues  that  have  been  "  listed "  should 
scrutinize  the  property  and  investigate  the 
value  for  themselves.  Caveat  emptor.  The 
immense  number  of  shares,  stocks,  bonds,  de- 
bentures, etc.,  that  are  dealt  in  on  the  Stock 
Exchange  in  London,  as  may  be  surmised,  ne- 
cessitates a  systematic  division  of  the  scant 
space  in  the  Board  Room.  A  portion  of  "  the 
floor  "  is  given  up  to  Consols,  bank  shares, 
Indian  securities,  one  to  home  railways,  one  to 
the  funds  of  foreign  states ;  a  department,  and  a 
large  one,  to  American  railways,  etc.  The  sec- 
tion of  the  floor  assigned  to  these  various  inter- 
ests are  again  subdivided  into  groups  varying  in 
size  with  the  activity  and  popularity  of  the  dif- 
ferent securities. 

When  a  member  wishes  to  obtain  what  he 
purchases  without  delay,  he  stipulates  at  the 
moment  of  negotiation  that  it  is  to  be  a  cash 
transaction,  otherwise  he  would  not  receive 
the  certificates  of  ownership  until  the  next 
"  settling  day."  These  settling  days  are  once 
a  month,  in  Consols,  and  twice  a  month, 
about  the  middle  and  end,  in  all  other  securi- 
ties.    Practically,  trading  "for  the  account,"  as 


Trading  "for  the  Account y  39 

this  is  called,  is  the  mode  in  which  nearly  all 
the  business  is  done,  and  under  it  purchases 
carry  no  interest  during  the  current  account,  at 
the  end  of  which  the  buyer  receives  the  securities 
due  hirn.  If,  before  that  day  arrives,  however,  he 
should  re-sell  the  same  securities,  there  should 
in  that  case  be  no  necessity  for  him  to  receive 
them  from  the  person  who  sold  to  him,  for  him, 
in  turn,  to  deliver  to  the  person  to  whom  he 
had  sold.  That  would  be  superfluous  labor 
and  risk,  and  that  he  avoids  by  the  intervention 
of  a  Clearing-House  arrangement,  which  elimi- 
nates himself  from  the  transaction  by  directing 
the  ultimate  seller  to  deliver  to  the  ultimate 
buyer,  the  middle  man  receiving  any  difference 
in  his  favor,  or  paying  any  that  is  against  him. 
This  end  is  accomplished  to  some  extent  by 
passing  around  for  endorsement  a  ticket,  which 
is  made  to  do  duty  as  a  settling  agent,  but  the 
Clearing  House  is  now  as  fixed  and  popular  a 
factor  in  the  Stock  Exchange  of  London  as 
among  the  banks  of  London  and  all  other  cities, 
in  "  clearing  "  or  settling  their  differences.  Many 
people  have  an  idea  that  a  Clearing  House,  by 
some  necromantic  power,  transforms  the  ordinary 
business  of  the  Exchanges  into  a  speculative 
character.     It    does    economize    book-keeping, 


40  London. 

money,  capital,  risk  of  banks,  and  avoids  the 
daily  passing  of  stocks  backward  and  forward 
through  the  streets  like  a  shuttle,  and  perhaps 
the  relief  of  the  business  from  such  burdens 
may  promote  activity  and  willingness  to  trade. 
But  it  is  precisely  as  legitimate  for  brokers  to 
adopt  the  economical  agency  of  the  Clearing 
House  as  for  banks,  who  no  longer  cart  their 
specie  from  one  office  to  another.  There  are  in 
London,  for  instance,  twenty-seven  banks  be- 
longing to  the  Bankers'  Clearing  House,  and  all 
other  bankers  in  London  and  throughout  Eng- 
land keep  accounts  with  them.  The  Clearing- 
House  banks  all  keep  accounts  in  the  Bank  of 
England,  and  in  the  clearing  of  any  day,  debtor 
banks  give  their  checks  on  the  Bank  of  Eng- 
land, which  the  creditor  banks  deposit  there, 
and  thus  not  a  sovereign  passes,  though,  to  illus- 
trate, in  the  week  ending  July  4,  1888,  £188,- 
000,000  (nearly  $950,000,000)  were  thus 
cleared.  The  principle  of  a  Clearing  House  in 
its  simplest  form  is  where  two  men  who  are 
mutually  indebted,  instead  of  paying  each  debt 
in  full,  should  "  pair  oif,"  as  far  as  the  debts  per- 
mit, the  larger  debtor  then  paying  the  excess. 
This  same  principle  extends  into  international 
transactions,  and  the  United  States  and  England, 


Trading  '  'for  the  Account. "  41 

instead  of  each  shipping  gold  on  all  purchases  in 
the  other  country,  only  do  so  to  the  extent  of  the 
balance  of  trade.  When  a  dozen  nations  are  trad- 
ing together  the  Exchanges  between  them  be- 
come more  complex,  but  otherwise  do  not  differ. 
It  is  with  transactions  between  members  of 
Stock  Exchanges  identically  the  same  as  be- 
tween merchants  of  nations  engaged  in  interna- 
tional commercial  intercourse.  Though  this 
mode  of  settlement  now  obtains  in  English  and 
Continental  Exchanges,  the  Consolidated  Ex- 
change of  New  York,  with  a  plan  similar,  but 
in  some  respects  preferable,  is  the  only  Stock 
Exchange  in  the  New  World  that  adopts  "trad- 
ing for  the  account"  with  a  Clearing  House. 
The  Stock  Exchange  of  Philadelphia  delivers 
stocks  daily  through  the  intervention  of  a 
Clearing  House.  In  the  Stock  Exchange  of 
London  inactive  securities,  which  are  rarely 
dealt  in,  are  not  cleared,  the  list  covering  only 
such  as  are  largely  bought  and  sold. 

All  members  of  the  Exchange  are  not  neces- 
sarily registered  in  the  Clearing  House,  and 
their  participation  in  its  operations  is  not  com- 
pulsory. The  Clearing  House  is  of  relatively 
recent  origin  in  its  application  to  stocks,  in 
London,  and  at  first  some  of  the  larger  houses 


42  London. 

opposed  its  introduction  as  it  to  some  degree 
destroyed  their  advantages  over  smaller  brokers 
and  dealers.  They  have,  however,  gradually 
come  to  acknowledge  its  vast  superiority  over 
the  old  system,  and  now  the  great  bulk  of 
the  business  goes  through  this  mode  of  settle- 
ment. Members  are  gradually  coming  in,  and 
the  indications  are  that  within  a  short  time 
the  entire  membership  will  employ  the  Clearing 
House,  which  is  conducted  by  the  Exchange 
as  a  part  of  its  official  machinery.  When 
the  end  of  the  fortnightly  period  arrives,  three 
days  are  allowed  to  complete  the  settlement. 
The  first  is  "  Contango  day,"  on  which  brokers 
and  dealers  balance  their  accounts  to  see  what 
they  have  to  deliver  and  what  to  receive  as  the 
net  result  of  their  operations  for  the  preceding 
two  weeks.  Those  who  are  "  bull "  of  a  certain 
stock  must  be  prepared  to  receive  the  actual 
certificates  upon  the  third  day,  which  is  called 
"  settling  day,"  the  intervening  one  being  known 
as  "  ticket  day."  The  "  bull "  (French,  Jiaussier) 
must  have  the  funds  to  pay  for  the  securities,  or 
he  must  borrow  the  money  almost  invariably 
on  a  pledge  of  collaterals  from  bankers  or 
money-lenders,  or  he  must  arrange  with  the 
seller,  the  "bear"  (French,  baissier),  or  some 


STOCK   EXCHANGE   OF  LONDON — INTERIOR. 


Z^  OF' THE        ^3 

[MIVEKSIT 


Trading  "  for  the  Account."  43 

one  else  in  the  Exchange  to  have  the  stock  car- 
ried over  till  the  end  of  the  next  fortnightly 
period.  If  he  pays  for  this  extension,  it  is 
called  a  "  contango  "  (French,  report),  which  with 
us  would  be  called  interest  or  "  carrying  charge." 
If  the  seller  is  operating  for  "  short "  account, 
and  finds  it  difficult  to  procure  certificates  to 
make  the  delivery,  the  buyer,  to  whom  he  owes 
stock,  may  only  consent  to  forego  for  the  next 
two  weeks  his  right  to  receive  it,  for  a  consider- 
ation. The  sum  thus  paid  by  the  seller  to 
defer  the  delivery  is  called  "  backwardation " 
(French,  deport),  which  with  us  would  be  called 
a  "premium."  When  the  contract  stands  over 
till  the  next  settlement  without  any  interest  or 
other  charges  either  way,  it  is  said  to  be  "  flat." 
All  persons  having  arranged  for  the  continuation 
into  the  next  account  of  such  contracts  as  are 
not  to  be  settled  by  an  actual  delivery  of  the 
securities,  and  all  offsetting  contracts  having 
been  eliminated  by  the  machinery  of  the  Clear- 
ing House,  "tickets"  are  exchanged  between 
those  members  who  have  actual  certificates 
to  deliver,  and  on  the  third,  or  "  settle- 
ment" day,  these  certificates  are  passed 
from  the  sellers  to  the  buyers.  Meanwhile 
trading  goes  on  in  the  Exchange  for  the  current 


44  London, 

account  which  in  turn  has  its  transactions  sub- 
jected to  the  same  process.  No  fixed  commis- 
sion is  charged,  but  one  eighth  per  cent,  to  buy 
and  the  same  to  sell  is  customary.  Active 
speculative  accounts  when  opened  and  closed 
during  a  fortnightly  period  are  sometimes  un- 
dertaken by  responsible  houses  for  one  sixteenth 
each  way.  There  is  no  place  in  the  world  where 
personal  honor  and  credit,  without  security,  go 
so  far  as  in  this  Exchange.  Contracts  entered 
into  "  for  the  account "  (French  a  terme)  re- 
main open  until  the  date  of  the  next  settlement, 
and  though  a  broker  may  have  coming  to  him 
at  that  time  an  immense  number  of  shares  and 
bonds  bought  at  lower  prices,  he  has  no  power 
before  that  date  to  call  upon  the  sellers  to  give 
any  security  whatever  for  the  faithful  perform- 
ance of  their  contracts.  A  dealer  might  make 
engagements  far  beyond  his  ability,  trusting 
that  at  the  settlement  period,  or  before,  he 
might  be  able  to  repurchase  stocks  which  he 
had  sold  short,  or  to  sell  stocks  which  he  had 
bought,  without  disastrous  loss,  and  if  the  mar- 
ket went  against  him  he  would  meanwhile  not 
be  compelled  to  disclose  his  inability  to  make 
good  the  difference.  An  American  cannot  but 
regard  this  as  an  undue  and  unnecessary  expan- 


i/ 


Trading  "for  the  Account!'  45 

sion  of  the  credit  system,  and  far  inferior  to  the 
American  plan  in  time  contracts.  The  latter 
gives  either  party  the  right  to  demand  a  mutual 
deposit  in  any  Trust  Company  (bank)  of  unex- 
ceptionable standing,  or  with  the  chairman  of 
the  Exchange,  of  ten  per  cent,  of  the  amount 
involved  in  the  open  contract.  This  removes 
from  American  business  an  element  of  risk 
inherent  in  the  English  system.  Americans 
have  no  conception  of  what  "  credit v  means, 
for  it  is  hedged  about  here  by  conditions  and 
limitations  unknown  to  brokers  in  London 
and  Paris.  The  custom  in  London  is  to  accept 
an  uncertified  check  for  securities  passing  be- 
tween members  of  the  Exchange ;  indeed  the 
practice  of  certifying  checks  there  is  unknown. 
A  member  can,  by  giving  proper  notice,  demand 
the  actual  cash,  but  that  is  only  resorted  to  in 
desperate  cases.  In  New  York  the  common 
practice,  especially  in  times  of  any  uneasiness, 
of  exacting  a  certified  check,  which  is  a  check 
marked  good  by  the  bank  on  which  it  is  drawn, 
for  all  sums  of  any  magnitude,  in  lieu  of  the 
certificates  or  bonds  delivered  to  the  buyer, 
reduces  the  risk  to  a  minimum,  and  is  prefer- 
able to  the  English  system,  which  all  the 
way  through  is  one  of  exceptional  confidence. 


46  London. 

No  doubt  the  custom  of  granting  credit  there 
leads  to  a  closer  scrutiny  of  character,  and  as  an 
aid  to  the  proper  estimate  of  the  real  status  of 
a  member  is  the  rule  forbidding  him  and  his 
wife  from  being  engaged  in  any  other  kind  of 
business. 

In  this  connection,  however,  it  is  proper  to 
remark  that  banking  in  the  United  States  is,  in 
some  respects,  more  hazardous  than  in  England. 
Outside  of  the  risk  of  loss  through  an  over-cer- 
tification of  checks  (as  we  spell  the  word)  is  the 
peril  from  irregular,  forged,  or  fraudulent  en- 
dorsements on  checks  payable  "  to  order."  The 
banker  here  is  ultimately  responsible,  and  is 
often  mulcted  when  he  has  exercised  all  the 
care  and  caution  consistent  with  the  practical 
conduct  of  business.  In  England  cheques  (as 
they  spell  the  word)  payable  "  to  order "  are 
similar  in  effect  to  those  payable  "  to  bearer  "  in 
the  United  States.  Bankers  there  are  protected 
by  the  Bills  of  Exchange  Act  of  1 882,  which 
provides  that 

"  When  a  bill,  payable  to  order  on  demand,  is  drawn 
on  a  banker,  and  the  banker  on  whom  it  is  drawn  pays 
the  bill  in  good  faith,  and  in  the  ordinary  course  of  busi- 
ness, it  is  not  incumbent  on  him  to  show  that  the  endorse- 
ment of  the  payee  or  any  subsequent  endorsement  was 
made  by  or  under  the  authority  of  the  person  whose 


Trading  "for  the  Account?  47 

endorsement  it  purports  to  be,  and  the  banker  is  deemed 
to  have  paid  the  bill  in  due  course,  although  such  en- 
dorsement has  been  forged  or  made  without  authority." 

"  Crossed  cheques,"  as  they  are  termed,  in 
England  are  more  nearly  like  our  checks  paya- 
ble "  to  order."  The  "  Crossed  Cheques  Act " 
of  1876  x  describes  this  form  of  draft  upon  a 
bank  as  follows  : 

"  Where  a  cheque  bears  across  its  face  an  addition  of 
the  words  '  and  company,'  or  any  abbreviation  thereof 
between  two  parallel  transverse  lines,  or  of  two  parallel 
transverse  lines  simply,  and  either  with  or  without  the 
words  '  not  negotiable,'  that  addition  shall  be  deemed  a 
crossing  and  the  cheque  shall  be  deemed  to  be  crossed 
generally.  Where  a  cheque  bears  across  its  face  an  addi- 
tion of  the  name  of  a  banker,  either  with  or  without  the 
words  '  not  negotiable,'  that  addition  shall  be  deemed  a 
crossing  and  the  cheque  shall  be  deemed  to  be  crossed 
specially,  and  to  be  crossed  to  that  banker.  Where  a 
cheque  is  uncrossed,  a  lawful  holder  may  cross  it  gener- 
ally or  specially.  Where  a  cheque  is  crossed  generally 
the  banker  on  whom  it  is  drawn  shall  not  pay  it  other- 
,  wise  than  to  a  banker.  Where  a  cheque  is  crossed 
specially,  the  banker  on  whom  it  is  drawn  shall  not  pay 
it  otherwise  than  to  the  banker  to  whom  it  is  crossed,  or 
to  his  agent  for  collection.  Any  banker  paying  a  cheque 
crossed  generally  otherwise  than  to  a  banker,  or  a  cheque 
crossed  specially  otherwise  than  to  the  banker  to  whom 
the  same  shall  be  crossed,  or  his  agent  for  collection, 
being  a  banker,  shall  be  liable  to  the  true  owner  of  the 
1  39  and  40,  Victoria. 


48  London. 

cheque  for  any  loss  he  may  sustain  owing  to  the  cheque 
having  been  so  paid." 

The  object  of  crossing  checks  of  course  is  to 
guard  against  their  payment  to  improper  per- 
sons, and  if  relief  shall  ultimately  be  given 
to  American  bankers  from  the  hardships  often 
incidental  to  the  responsibilities  which  our  laws 
fix  upon  them,  some  modification  of  the  English 
idea  may  be  introduced  here.  As  stock-brokers 
often  combine  the  function  of  banking  and  bro- 
kerage a  consideration  of  the  difference  between 
the  British  and  American  banking  systems  in  this 
respect,  is  not  inappropriate. 

The  Stock  Exchange  of  London,  like  those 
of  New  York,  is  a  voluntary  association,  and 
it  is  governed  by  its  own  rules  and  regulations, 
in  so  far  as  they  do  not  conflict  with  the  law  of 
the  land.  The  Special  Committee  of  the  House 
of  Commons,  "  On  Loans  to  Foreign  States," 
which  made  a  voluminous  report  on  the  meth- 
ods employed  in  introducing  new  loans  on  the 
British  market,  said  with  reference  to  the  or- 
ganization of  the  Stock  Exchange,  that  "  such  a 
body  can  hardly  be  interfered  with  by  Parlia- 
ment without  losing  that  freedom  of  self-gov- 
ernment which  is  the  very  life  and  soul  of  the 
institution."  The  chairman  of  this  committee 
was  Mr.  Lowe,  a  former  Chancellor  of  the  Ex- 


Trading  "for  the  Account l"  49 

chequer,  and  among  its  members  were  the  Solici- 
tor-General. Sir  Henry  James,  Sir  Charles  Rus- 
sell, Mr.  (now  Sir)  John  Puleston,  and  men  of 
that  stamp.  The  Royal  Commission  to  investi- 
gate the  working  of  the  Stock  Exchange  in 
1877  advocated  its  incorporation  "for  the  pur- 
pose of  strengthening  its  hands  and  increasing 
its  efficiency  in  the  future."  Though  the  re- 
port was  signed  by  the  whole  Committee,  which 
was  composed  of  Lords  Penzance  and  Black- 
burn, Baron  Rothschild,  H.  H.  Gibbs,  previously 
Governor  of  the  Bank  of  England,  and  others 
of  equal  distinction,  a  large  minority  signed  it 
with  a  reservation  as  to  this  recommendation. 
They  all  agreed  that  "any  external  control 
which  might  be  introduced  by  such  a  change, 
should  be  exercised  with  sparing  hand.  The 
existing  body  of  rules  and  regulations  have 
been  formed  with  much  care,  and  are  the  result 
of  long  experience,  and  the  vigilant  attention  of 
a  body  of  persons  intimately  acquainted  with  the 
needs  and  exigencies  of  the  community  for  whom 
they  have  legislated.  Any  attempt  to  reduce 
these  rules  to  the  limits  of  the  ordinary  law  of 
the  land,  or  to  abolish  all  checks  and  safeguards 
not  to  be  found  in  that  law  would,  in  our  opin- 
ion, be  detrimental  to  the  honest  and  efficient 
conduct  of  business." 


CHAPTER  VII. 

•uese;   its  origin   and  growth. 

IT  is  tantalizing  to  an  inquirer  into  the  early 
history  of  financial  and  commercial  insti- 
tutions in  France,  even  more  than  in  England, 
to  discover  how  little  their  origin  is  noted  by 
contemporary  chroniclers.  History  is  rather  a 
record  of  war  and  politics  than  of  the  victories 
of  peace  and  industry.  We  learn  that  merchants 
assembled  in  Paris  five  hundred  years  ago,  but 
this  fact  is  mainly  preserved  by  the  name  of  the 
Bridge  by  the  side  of  which  they  met — the 
Pont-au-change.  Finally,  in  1724,  the  business 
of  stock  brokerage  had  risen  to  such  a  dignity, 
owing  to  the  enormous  speculations  in  the  Mis- 
sissippi Company's  shares,  that  the  Bourse  was 
legalized  and  assigned  to  the  Hotel  de  Nevers, 
between  Rue  Yivienne  and  Rue  Richelieu.  On 
October  25,  1726,  by  an  order  of  the  Council  of 
State,  an  official  distinction  was  made  between 
brokers  in  stocks  and  in  merchandise.  In  1786 
that  portion  of  the  law  of  1724  which  granted 

50 


The  Bourse,  5 1 

the  right  to  sixty  persons  to  do  the  business  of 
stock-brokers  without  payment  to  the  state  was 
repealed,  and  sixty  officers  (or  brokers)  were  ap- 
pointed for  life  upon  the  payment  of  a  sum  of 
money  to  the  state.  The  Revolution  swept 
away  this  monopoly  in  the  law  of  1791  ;  but 
four  years  later,  the  free  exercise  of  the  right 
to  do  business  as  a  stock-broker  was  prohibited, 
and  twenty-five  brokers  were  established.  In 
1801  the  number  was  limited  to  eighty,  but  in 
1816  it  was  again  reduced  to  sixty,  and  this 
limitation  as  to  number  of  official  brokers  ex- 
ists to-day.  M.  Alph.  Courtois,  Fils,1  says  that 
in  1801  the  security  deposited  with  the  govern- 
ment by  each  of  the  sixty  Agents  de  Change 
was  60,000  francs,  increased  in  1805  to  100,000, 
in  1816  to  125,000,  and  finally,  by  the  Imperial 
Decree  of  October  1,  1862,  the  sum  was  fixed 
at  250,000  francs  for  the  Paris  Bourse,  40,000 
for  Lyons,  30,000  for  Marseilles,  Bordeaux,  etc. 
This  last  act  still  remains  in  force,  and  each  of 
the  sixty  Agents  de  Change  in  Paris  has  lodged 
with  the  Minister  of  Finance  250,000  francs, 
which  is  liable  for  his  obligations  in  the  event 
of  his  default.  He  receives  3  per  cent,  from 
the  government  for  his  deposit,  and  while  the 

1  Operations  de  Bourse  et  de  Change. 


5  2  Paris. 

public  have  security  iu  this  pledge,  it  is  not 
hazarding  much  to  say  that  the  government 
farmed  out  the  exclusive  rights  in  perpetuity 
to  sixty  persons  as  officially  recognized  brokers 
in  Paris,  in  consideration  of  this  deposit !  It 
was  impecuniosity  and  not  statesmanship  that 
devised  the  plan,  and  several  times  "  raised  the 
stakes." 

The  number  of  legally  recognized  brokers  be- 
ing limited,  ,and  the  power  to  nominate  a  suc- 
cessor inhering  in  the  office,  it  follows  that  the 
privilege  of  membership  in  this  select  body  be- 
came very  valuable.  M.  Courtois  states  that 
before  the  Revolution  memberships  commanded 
no  price,  that  afterwards  a  sale  was  made  at 
30,000  francs,  and  that  before  1830  they  had 
increased  to  850,000  francs.  After  the  Revolu- 
tion of  July  they  fell  to  250,000,  rising  to  950,000 
francs  before  1848.  The  Revolution  in  that 
year  depreciated  the  value  of  memberships  to 
400,000  francs,  but  at  present  they  command 
about  2,000,000  francs  (or  say  $400,000). 

A  "  seat "  in  the  Parquet  can  only  be  obtained 
by  purchase,  and  as  many  as  twelve  persons 
may  be  partners  in  its  ownership,  though  it  must 
be  placed  in  the  name,  and  under  the  control  of 
some  one  of  its  proprietors,  who  alone  has  the 


The  Bourse. 


53 


right  to  do  business  in  the  Bourse,  and  who 
must  own  outright  at  least  one  fourth  of  the 
membership.  He  must  not  only  be  elected  by 
his  fellows  after  making  the  purchase  of  the 
seat,  but  his  election  must  be  confirmed  by  the 
Minister  of  Finance,  who  nominates  him  as  one 
of  the  official  agents,  before  he  can  exercise  the 
duties  of  his  office  as  broker.  Members  must 
furnish  the  Syndic  annually  with  a  list  of  their 
employes,  stating  what  salaries  they  receive, 
and  also  permit  the  public  exhibit  of  the  names 
and  interests  of  any  partners  they  may  have. 
The  silent  partners  are  personally  liable  for  all 
the  obligations  incurred  by  the  active  partner 
while  acting  in  his  capacity  as  A  gent  de  Change. 
No  one  can  become  an  Agent  de  Change  who 
is  not  a  Frenchman,  at  least  twenty-five  years 
of  age,  recommended  by  several  bankers  and 
commercial  houses.  He  is  forbidden  to  spec- 
ulate or  do  business  on  his  own  account. 
He  must  keep  his  books  on  the  double-entry 
plan,  after  a  model  furnished  by  the  Syndical 
Board,  and  he  cannot  bring  an  action  in  the 
courts  without  its  authority.  If  he  should  be 
obliged  to  leave  business,  even  temporarily,  he 
must  notify  the  Syndic  of  the  fact,  and  who  his 
representative  will  be  during  his  absence. 


54  Paris. 

With  all  the  financial  interests  that  are  focused 
in  the  Bourse  it  is  physically  impossible  for  sixty 
persons  to  properly  perform  the  functions  de- 
volving upon  them.  Moreover,  to  confer  upon 
any  body,  however  large,  such  autocratic  power 
and  privilege,  would  be  regarded  in  this  country 
as  an  abuse  of  constitutional  right,  and  an  act  in 
restraint  of  trade. 

The  exclusive  rights  given  to  the  Agents  de 
Change  led  to  the  gradual  growth  of  a  body 
of  unlicensed  brokers  called  Coulissiers,  who 
form  what  is  still  known  as  the  Coulisse,  as  dis- 
tinguished from  the  Parquet,  the  name  given  to 
the  body  of  Agents  de  Change.  The  Coulisse 
began  to  crystallize  at  the  end  of  the  Napo- 
leonic wars,  and  at  first  it  confined  its  operations 
to  French  rentes. 

The  railway  fever,  beginning  about  1836  and 
continuing  ten  years,  was  felt  in  France  pretty 
much  as  in  England,  and  in  the  latter  part  of 
that  decade  the  shares  of  railway  companies 
were  literally  spawned.  From  1844  to  1847 
the  share  capital  of  railway  companies  formed 
in  France  is  estimated  to  have  been  over  one 
thousand  million  francs  (say  $200,000,000). 
Forty  years  ago  this  sum  looked  much  more 
formidable  than  at  present,  for  since  that  time 


The  Bourse.  55 

the  floating  capital  of  the  world  has  been  vastly 
augmented.  Investments  in  railway  securities, 
which  were  then  experimental,  are  now  the  ac- 
cepted outlet  for  the  surplus  capital  of  all  com- 
mercial communities.  There  was  naturally,  at 
that  period,  an  immense  overflow  of  speculative 
business  in  these  issues,  and  through  it  the  Cou- 
lisse grew  rapidly  into  a  commanding  position. 
Their  number  was  unlimited  and  embraced,  as 
at  present,  bankers,  speculators,  brokers,  and  in- 
vestors, who  either  did  not  have  the  means,  or 
could  not  gain  admission  into  the  restricted  mem- 
bership of  the  Parquet,  as  sixty  places  could  not 
possibly  accommodate  the  number  of  persons 
who  wished  to  engage  in  this  business.  Finally 
the  Coulisse  had  so  poached  upon  the  pre- 
serves of  the  Parquet  that  the  latter  body  de- 
termined to  assert  their  legal  prerogatives,  and 
in  1859  they  brought  suit  against  the  Coulis- 
siers.  Twenty-six  of  the  latter  were  fined  10,500 
francs  each  for  usurping  functions  exclusively 
belonging  to  the  Agents  de  Change,  and  for  the 
time  being  the  Coulisse  was  dispersed. 

Article  76  of  the  Commercial  Code  describes 
the  privilege  of  the  Parquet  as  follows  :  "  The 
Agents  de  Change,  constituted  in  the  manner 
prescribed  by  law,  alone  have  the  right  to  nego- 


%  6  Paris. 


3 


tiate  public  and  other  securities  that  may  be 
quoted  in  the  stock  list,  or  to  negotiate  for 
account  of  others,  drafts  or  bills  or  any  other 
commercial  paper,  and  to  fix  the  rates  therefor." 
This  latter  function  has  been  allowed  to  lapse, 
and  Agents  de  Change  as  a  matter  of  fact 
never  negotiate  bills  of  exchange  or  commer- 
cial paper. 

When  the  Parquet  had  thus  asserted  their 
monopoly  they  adopted  a  policy  of  semi-expan- 
sion by  permitting  authorized  clerks  to  make 
contracts  in  cash  in  contra-distinction  to  trans- 
actions "on  account,"  which  latter  in  Paris,  as 
in  London,  constitute  the  bulk  of  the  business 
of  the  Parquet.  Finally,  however,  the  Coulisse 
reconstructed  itself  and  the  two  divisions  of 
the  Bourse  now  dwell  together  in  apparent 
harmony.  The  fact  is,  the  Parquet  feel  that 
their  tenure,  like  that  of  the  House  of  Lords 
in  England,  is  not  so  secure  that  they  can  af- 
ford to  arrogate  all  the  rights  legally  conceded 
to  them.  They  feel  bound  to  preserve  their 
credit  intact  and  to  keep  it  above  suspicion,  for 
fear  of  losing  their  vested  privileges.  This  was 
exhibited  by  their  conduct  during  the  great 
Krach  in  1881,  when  the  Union  Generale  failed. 
The  Parquet  had  subscribed  for  shares  in  a  new 


The  Bourse.  57 

issue  of  stock  by  this  institution,  and  had  in 
turn  sold  considerable  of  it  for  future  delivery 
to  members  of  the  Coulisse.  Meanwhile  the 
company  suspended,  and  owing  to  irregulari- 
ties in  the  issue  the  Coulisse  declined  to  accept 
the  stock  tendered  to  them.  The  matter  was 
carried  to  the  courts,  and  the  Coulisse  won,  in- 
volving the  Parquet  in  immense  losses,  which 
almost  bankrupted  them.  But  they  stood  hero- 
ically together  in  mutual  support,  borrowed 
large  sums  of  money  upon  the  joint  credit  of 
the  membership,  maintained  unsullied  the  credit 
of  their  organization,  and  doubtless  thereby  pre- 
vented an  abrogation  of  their  rights,  which 
naturally  might  have  followed  any  general 
insolvency. 


■> 


CHAPTER  VIII. 

PARIS THE   BOURSE PARQUET    AND    COULISSE. 

THE  Bourse  occupies  a  stately  building  of 
free-stone,  which,  with  its  noble  Corinth- 
ian columns  and  air  of  classic  grace,  might  easily 
be  mistaken  for  a  church,  public  hall,  or  palace, 
and,  indeed,  its  designation  is  the  "  Palais  de 
la  Bourse."  When  the  city  of  Paris  was  con- 
structing (1808-26)  this  temple  of  Mammon 
the  grants  were  insufficient  to  secure  its  prompt 
completion,  and  the  Compagnie  des  Agents  de 
Change  contributed  voluntarily  some  two  or 
three  millions  of  francs  towards  its  cost,  and,  in 
consequence  of  this  act,  a  ministerial  order  was 
issued  by  the  Treasury  giving  the  Compagnie 
the  free  use  of  the  building  without  charge. 
The  spot  where  it  is  located  is  known  as  the 
"  Place  de  la  Bourse,"  and  faces  Bue  Vivienne. 
The  grand  hall  of  the  Bourse  is  open,  airy,  and 
capacious,  and  in  every  way  a  credit  to  the  in- 
stitution. Singularly  enough,  the  Frenchmen, 
in  spite  of  their  reputed  admiration  for  the  fair 

58 


rxP^Q9  THE 

fgSlVBRSITTJ 


The  Bourse.  59 

sex,  admit  no  women  or  children  to  the  gallery. 
New  York  brokers,  with  their  gallantry,  would 
feel  as  if  much  of  their  sweetness  were  "  lost  on 
desert  air  "  if  they  could  not  now  and  then  pose 
to  curious  and  surprised  feminine  visitors  in 
the  gallery.  A  Frenchman  is  as .  nervous  as  an 
electric  eel,  and  the  stock-market  operates  upon 
him  like  a  voltaic  pile.  In  a  placid  market  he 
is  like  a  jumping- jack ;  in  a  panic  he  deports 
himself  like  a  victim  of  St.  Vitus's  dance. 
During  the  forenoon  the  Bourse  is  quite  de- 
serted, but  at  twelve  o'clock,  if  one  approaches 
it,  he  sees  excited  groups  occupying  every  inch 
of  space  under  the  splendid  portico,  or  peristyle. 
These  are  members  of  the  Coulisse,  and  here  is 
where  they  transact  all  their  business  in  the  day- 
time, except  in  French  rentes,  which,  by  courtesy 
of  the  Parquet,  takes  place  in  a  corner  of  the  main 
hall.  When  the  observer  mingles  in  the  throng 
in  this  outer  mart  of  the  Coulisse  he  sees  one 
group  trading  in  Italian  Funds,  another  in  Rus- 
sian, still  another  in  Egyptian,  again  another  in 
Panama  Canal  shares,  and  so  on.  These  trans- 
actions are  all  for  "  the  account,"  which  means 
that,  at  the  end  of  the  month,  when  the  "  settle- 
ment day "  arrives,  the  buyers  will  receive  any 
stock  due  them,  except  French  rentes,  which  are 


60  Paris. 

seldom  delivered  by  the  Coulisse,  and  contracts 
in  which  practically  continue  indefinitely,  in 
most  cases  differences  only  being  settled. 

In  the  Parquet  the  settlement  day  in  French 
rentes  is  also  at  the  end  of  the  month,  but  in 
other  public  funds,  and  in  "  values  "  (valeurs), 
as  the  French  term  commercial  securities,  the 
settlements  are  fortnightly,  as  in  London.  In 
both  Parquet  and  Coulisse  a  clearing  house  per- 
forms functions  similar  to  that  in  the  Stock 
Exchange  in. London  and  the  Consolidated  Ex- 
change of  New  York.  In  the  Parquet  the  com- 
missions are  fixed  at  about  \  per  cent,  each  way, 
by  the  Chambre  Syndicate,  composed  of  a  Syn- 
dic and  six  members,  who  constitute  the  govern- 
ing body.  The  Coulissiers  have  no  commission 
law,  but  usually  charge  about  -Jg-  per  cent,  or 
half  the  rate  charged  by  the  Agents  de  Change, 
and  they,  too,  are  governed  by  a  Syndical  Board. 

The  Coulisse  skim  along  on  the  surface  of 
speculation,  caring  little  for  investment  business, 
in  which  indeed  they  are  handicapped  by  the 
rule  of  the  French  Treasury,  the  Bank  of 
France,  Credit  Foncier,  French  railway  com- 
panies, etc.,  which  will  not  recognize  any  trans- 
fers of  their  registered  or  inscribed  shares,  ex- 
cept when  contersigned  by  an  Agent  de  Change. 


The  Bourse,  61 

This  is  one  of  the  perquisites  of  the  monopoly 
enjoyed  by  the  Parquet,  but  when  necessary  the 
Coulisse  can  always  obtain  this  service  by  pay- 
ing one  of  the  agents  his  commission.  As  a  rule, 
however,  it  may  be  said  that  the  business  of  the 
Coulisse  is  chiefly  speculative,  and  notwithstand- 
ing the  fact  that  it  is  outside  of  government 
concessions,  with  seats  of  no  value,  because  not 
limited  in  number  and  not  transferable,  it 
does  almost  as  much  business  as  the  Parquet, 
and  at  times  more.  The  big  speculation  in  cop- 
per a  year  ago,  for  instance,  was  in  the  Coulisse, 
and  there  alone  Panama  Canal  shares  are  dealt 
in.  In  the  winter  it  pays  the  Credit  Lyonnais 
fifty  thousand  francs  for  a  large  hall,  where  it 
holds  evening  sessions,  known  as  the  "  Petite 
Bourse." 

The  Agents  de  Change  stand  around  a  circular 
railing  (technically,  corbeille),  which  in  the  Ex- 
changes of  this  country  is  called  either  a  "  ring  " 
or  "  the  pit."  Its  diameter  is  small  enough  to 
permit  each  member  to  hear  his  vis-a-vis.  Two 
small  lings  or  spaces  (petites  corbeilles)  are  con- 
tiguous to  the  circle  occupied  by  the  select 
sixty.  In  one  of  the  former,  sixty  clerks,  one 
for  each  member,  are  engaged  in  making  cash 
transactions  on  behalf  of  the  Agents,  and  in  the 


62  Paris. 

other  the  same  number  of  clerks  are  occupied 
exclusively  with  transactions  in  the  French 
funds  "for  the  account"  (negotiations  a  terme 
sur  la  rente).  A  third  enclosure  is  set  aside 
for  persons  who  solicit  business  for  the  Agents. 
They  are  called  remisiers,  which  might  be  ren- 
dered into  the  American  equivalent  of  "  drum- 
mers." The  Coulissiers  have  no  such  a  barrier 
as  the  corbeille,  and  consequently  they  form 
into  a  compact  mass  in  each  group,  which 
makes  the  transaction  of  their  business  more 
laborious. 

As  previously  said,  dealings  begin  on  the 
outer  edge  of  the  Bourse  at  12  o'clock  by  the 
Coulissiers.  At  12.30  the  sixty  Agents  de 
Change  assemble  and  continue  dealing  until  3 
o'clock;  whereas  the  Coulisse  remains  in  ses- 
sion until  4  o'clock,  not  counting  their  nocturnal 
meetings.  In  Berlin  the  Boerse  opens  at  12, 
closing  at  2.30  o'clock ;  in  Vienna  it  is  open  from 
10  to  11  and  12  to  1.45.  Americans  start  ear- 
lier in  the  day  (10  a.m.)  than  any  other  brokers, 
except  the  Viennese,  and  have  a  longer  session 
(closing  at  3)  than  any  except  the  English. 
Each  country,  of  course,  has  its  own  national 
holidays,  in  addition  to  those  recognized  every- 
where, such  as  Christmas  and  New  Year's.    The 


The  Bourse.  •  63 

Parquet  have  an  organization  that  perhaps  more 
nearly  resembles  an  unlimited  partnership  than 
any  other  Exchange.  Their  membership  is  so 
small  that  it  is  almost  like  a  happy  family,  and 
their  rules  go  so  far  as  to  provide  that  only  one 
of  their  number  may  occupy  offices  in  any  given 
building,  and  in  case  of  his  removal  none  of  his 
colleagues  can  open  in  that  building  within  two 
years. 

This  leads  to  one  of  the  peculiarities  of  Paris, 
which  is  the  absence  of  any  financial  quarter. 
In  London  and  New  York  brokers'  offices  and 
banks  surround  the  Stock  Exchanges,  giving  a 
distinct  character  to  that  part  of  these  cities,  so 
that  the  phrases  "  Lombard  Street  "  and  "  Wall 
Street "  imply  banking  and  brokerage  interests. 
In  Paris,  however,  the  "  Place  de  la  Bourse  "  is 
close  to  small  and  inferior  shops,  and  nothing 
in  its  environment  in  any  manner  suggests  the 
nature  of  the  business  transacted  within  its  pur- 
lieus. Banking  and  brokerage  houses  are  scat- 
tered all  over  Paris,  but  nowhere  do  they  attract 
attention,  because  of  their  isolation.  With  all 
the  speculative  instincts  of  the  Frenchman,  with 
his  love  of  excitement,  his  constitutional  fond- 
ness for  change  in  political  life,  his  unceasing 
search  for  novelties,  it  is  remarkable  that  deal- 


64  *  Paris, 

ings  in  American  shares  have  never  been  success- 
fully inaugurated  there.  Why  the  Bourse  should 
maintain  an  active  speculation  in  Russian,  Turk- 
ish, and  Egyptian  funds,  at  the  same  time  utterly 
neglecting  American  government  bonds  and 
railway  shares,  is  a  mystery.  Some  Parisians 
buy  and  sell  "  Americans,"  but  they  do  so 
chiefly  through  London.  The  French  people 
do  not  migrate  much,  and  outside  of  the  old 
"  stand-bys  "  in  foreign  public  funds  and  foreign 
enterprises  managed  by  Frenchmen,  their  capi- 
tal is  equally  domestic  in  its  tastes.  They  will 
put  money  freely  into  a  speculative  experiment 
like  the  Panama  Canal,  because  the  rich  profits 
arising  from  the  investment  in  Suez  inspire  un- 
limited faith  in  their  industrial  Napoleon,  De 
Lesseps,  while  they  ignore  the  enormous  specu- 
lative opportunities  upon  much  safer  founda- 
tions in  the  United  States.  Well-informed 
American  engineers  do  not  believe  that  the 
Panama  enterprise  can  be  successfully  com- 
pleted by  the  present  company,  and  its  possible 
bankruptcy  may  not  only  involve  a  serious 
financial  crisis,  but  may  also  unsettle  the  foun- 
dations of  the  French  Republic  itself.  The 
shares  and  debentures  of  the  Panama  Canal  are 
held  by  retail  shopkeepers,  peasants,  servants, 


The  Bourse.  65 

and  people  of  small  means,  and  are  avoided  by 
capitalists,  bankers,  and  shrewd  speculators. 
De  Lesseps  has  always  appealed  to  the  former 
classes,  and  as  they  were  the  principal  sub- 
scribers and  beneficiaries  of  the  Suez  invest- 
ment, he  now  relies  wholly  upon  them  to 
enable  him  to  complete  his  present  undertak- 
ing. 

Though  the  credit  of  France  was  so  reduced  in 
1797  that  5  per  cent,  rentes  sold  as  low  as  6^^-, 
and  not  higher  than  36Tyir  in  that  year ;  though 
from  1816  to  1869  there  was  an  annual  deficit; 
though  to-day  its  debt  is  the  largest  of  any  nation  ; 
and  though  it  has  passed  through  more  inter- 
nal vicissitudes  than  any  other  European  com- 
mercial nation,  it  has  never  repudiated  its 
obligations.  In  1871,  when  France  lay  prostrate 
beneath  the  conqueror's  heel  and  an  indemnity 
of  five  milliards  ($1,000,000,000)  was  required, 
the  francs  fairly  leaped  from  the  pockets  of  the 
loyal,  frugal  people,  and  the  loan  was  sub- 
scribed for  several  times  over.  While  the 
French  are  volcanic  in  their  character  and 
sometimes  deluge  their  land  with  the  lava  and 
ashes  of  internecine  war  and  external  violence, 
they  soon  clear  away  the  debris  and  go  to 
work.     They  excel  all  nationalities  in  the  arts 


^>^   OF  THE 


USIVERSIT 


66  Paris. 

of  painting,  design,  cookery,  and  dress,  and  the 
world  pays  them  a  willing  money  tribute. 

The  Bank  of  France  is  the  keystone  of  the  arch 
of  the  public  credit  of  that  country,  and  it  is  one 
of  the  best  managed  financial  institutions  in  any 
country.  It  has  the  sole  right  to  issue  currency, 
which  it  may  do  up  to  $700,000,000  value,  stated 
in  American  money.  In  general  the  banking 
and  credit  system  is  less  developed  in  France 
than  in  any  other  country  of  equal  civilization, 
and  the  percentage  of  cash  payments  there  is 
infinitely  greater  than  elsewhere.  Notwith- 
standing this,  the  Bourse  is  one  of  the  finest 
examples  of  a  perfected  credit  system  to  be 
found  anywhere.  In  this  respect  it  is  superior 
to  its  commercial  surroundings,  but  in  its  re- 
stricted membership  and  quasi-relations  to  the 
government  it  is  sadly  behind  the  times. 


CHAPTER  IX. 

NEW    YORK EAELY    HISTORY    OF    THE    STOCK    EX- 
CHANGE. 

TURNING  now  to  America,  it  must  be 
conceded  that  it  was  born  of  a  specu- 
lative undertaking.  The  voyage  of  Columbus, 
over  a  mysterious  and  trackless  ocean,  was  the 
boldest  experiment,  and  in  its  results  the  most 
colossal  speculation  in  the  annals  of  human 
enterprise.  In  the  language  of  the  Exchange, 
Ferdinand  and  Isabella  "  put  up  as  margin  "  the 
cost  of  fitting  out  the  expedition,  and  their 
profit  was  the  western  hemisphere.  The  paral- 
lel goes  further  in  this,  that  like  many  specu- 
lators they  finally  lost  what  they  had  gained. 
For  the  first  one  hundred  and  fifty  years  after 
its  discovery  the  territory  now  known  as  the 
United  States  was  hardly  visited  by  Europeans, 
and  the  next  one  hundred  and  fifty  years  were 
dedicated  to  the  establishment  of  a  fringe  of 
colonies  along  the  Atlantic  coast,  and  their  final 
separation  from  parental  authority.     When  the 

67 


68  New  York. 

Revolutionary  War  ended,  commerce  was  in  its 
infancy  and  capital  scarce.  After  the  battles  of 
New  Orleans  and  Waterloo  the  spirit  of  com- 
mercial and  industrial  life  succeeded  political 
and  military  ambition,  and  at  this  period  in 
both  Europe  and  America  was  inaugurated  the 
era  of  the  peaceful  conquests  of  money  and 
labor.  The  constructive  idea  supplanted  the 
destructive. 

Exchanges  do  not  spring  like  Minerva  from 
the  brain  of  Jupiter,  into  full-fledged  existence, 
but  are  the  product  of  gradual  evolution. 

Though  the  New  York  Stock  Exchange 
traces  the  germs  of  its  existence  to  1792,  when 
twenty-four  persons  who  called  themselves 
"  Brokers  for  the  Purchase  and  Sale  of  Public 
Stock"  signed  a  paper  agreeing  to  charge  not 
less  than  \  of  one  per  cent,  commission  on 
such  transactions,  the  real  foundation  of  the 
v  present  organization  was  not  laid  until  1817. 
In  1792  the  public  debt  of  the  United  States 
was  only  $17,993,000,  whereas  in  1816  it  had 
mounted  to  $108,510,000,  its  highest  sum  prior 
to  1862.  The  year  in  which  the  Stock  Ex- 
change was  ushered  into  existence  as  a  regu- 
larly organized  body  with  "  a  local  habitation 
and   a   name"   coincided   with    the   maximum 


/ 


Early  History  of  the  Stock  Exchange,      69 

of  public  debt.  Business  was  confined  chiefly 
y^to  private  partnerships,  and  that,  too,  on  a 
small  scale,  and  hence  the  occupation  of  stock-  - 
brokers  in  those  days  was  dependent  almost 
wholly  upon  the  volume  of  the  national  debt,  * 
except  in  so  far  as  they  might  be  employed  in 
commercial  paper,  in  bills  of  exchange,  and  the 
conversion  of  paper  money  into  specie  or  the 
reverse.  The  public  debt  was  gradually  re- 
duced, until  1835,  when  the  President  of  the 
United  States  announced  in  his  annual  message 
that  "  all  the  remains  of  the  public  debt  have 
been  redeemed  or  money  has  been  placed  on  de- 
posit for  this  purpose."  The  rapid  extinction  of 
the  public  debt  would  likewise  have  almost  extin- 
guished the  stock-brokerage  fraternity  had  not 
the  issue  of  stocks  and  bonds  for  railroad  con- 
struction come  along  opportunely  at  this  junc- 
ture, to  furnish  a  worthy  substitute  for  govern- 
ment bonds. 

The  "  magnificent  distances "  in  our  coun- 
try, and  its  boundless  resources,  opened  a  vista 
to  the  speculator  which  is  not  likely  to  occur 
again  in  the  history  of  mankind.  There  lay 
on  our  Western  border  prairies  and  valleys  as 
fair  as  the  Garden  of  Hesperides  and  almost 
as  primitive  as  the  Garden  of  Eden.     Beyond 


jo  New  York. 

lay  the  mountains,  locking  in  their  stony  em- 
brace treasures  richer  than  those  of  the  island 
of  Monte  Cristo,  and  on  the  Pacific  coast  ran 
the  Pactolian  rivers  of  California.  The  specu- 
lator surveyed  the  scene,  cast  its  tempting  linea- 
ments on  the  screen  of  the  money  market,  and 
immediately  speculative  dollars  chased  each 
other  in  a  race  across  the  continent.  The  iron- 
horse  invaded  the  wilderness,  performing  for  the 
Great  West  what  the  "  wooden  horse  "  did  for 
Troy, — it  admitted  the  people  who  conquered 
the  country.  The  railroad  pioneered  the  way 
for  population,  not  waiting  for  traffic,  but  antici- 
pating its  creation.  In  fact,  capital  discounted 
the  future,  and  speculation,  rather  than  invest- 
ment, hastened  the  phenomenal  development  on 
the  ever-retreating  frontier. 

The  discovery  of  gold  in  California,  supple- 
mented by  Australian  gold  and  Nevada  silver, 
enormously  augmented  the  world's  stock  of  bul- 
lion, stimulated  the  channels  of  trade  throughout 
Christendom,  and  gave  a  new  impulse  to  specula- 
tion. The  panics  of  1837,  1857,  and  1873  momen- 
tarily inflicted  great  injury  on  private  interests, 
but  did  not  permanently  retard  the  accumulation 
of  wealth.  As  the  country  grew  richer  the  pro- 
portion of  floating  to  fixed  capital  increased,  in- 
volving a  corresponding  enlargement  of  the  vol- 


Early  History  of  the  Stock  Exchange,      J  i 

ume  of  Stock-Exchange  business.  The  Civil 
War,  with  the  vast  expansion  of  national  debt, 
the  suspension  of  specie  payments,  and  introduc- 
tion of  a  depreciated  paper  currency,  all  served 
to  increase  the  fuel  and  fan  the  flame  of  specula- 
tion. The  public  debt  amounted  in  1866  to  over 
$2,776,000,000,  now  reduced  to  $1,727,000,000, 
which  is  diminished  almost  every  day  by  bond 
purchases.  After  the  war  railroad  construction 
proceeded  at  an  increasing  rate,  and  the  capital 
to-day  actually  invested  in  railroad  property  in 
the  United  States  is  estimated  at  about  $8,000,- 
000,000. 

Up  to  1856  the  laws  did  not  protect  stock- 
brokers in  the  right  to  recover  money  due  from 
clients,  but  gradually  legislation  is  emancipating 
itself  from  the  narrow  prejudices  and  antiquated 
precedents  that  used  to  put  the  stock-broker  on 
a  par  with  a  "  three-card  monte  "  player.  The 
statutes  of  the  various  States  of  the  Union  dif- 
fer, of  course,  in  their  treatment  of  Stock-Ex- 
change transactions  but  Legislatures  and  courts 
are  coming  each  year  to  more  clearly  recognize 
the  fact  that  buying  and  selling  stocks  and  bonds 
on  margin,  for  long  or  short  account  is  as  legiti- 
mate as  buying  or  selling  potatoes  on  credit. 
The  absurdity  that  "  a  margin "  given  to  a 
broker  on  a  purchase  of  stocks  implies  gambling 


72  New  York. 

in  a  sense  different  from  the  margin  of  security 
given  by  the  buyer  of  a  house  to  the  money- 
lender who  loans  upon  his  real  estate,  is  dawn- 
ing upon  the  intelligence  of  men  who  are  sensi- 
ble enough  to  be  independent  of  the  precedents 
of  forms  of  jurisprudence  which  condemned 
witches.  The  broker  now  stands  on  a  plane  of 
legal  and  social  equality  with  bankers,  lawyers, 
and  merchants,  as  the  usefulness  of  his  vocation 
justifies.  Lawyers  can  afford  to  sympathize 
with  the  early  status  of  brokers,  because  in  the 
period  following  the  Revolution  in  Massachu- 
setts, for  instance,  as  McMaster  says1  the  feel- 
ing ran  so  high  against  the  legal  profession  that 
lawyers  "  were  denounced  as  banditti,  as  blood- 
suckers, as  pickpockets,  as  wind-bags,  as  smooth- 
tongued rogues."  Bankers  will  understand  it, 
for  in  1799,  when  there  were  only  two  banks  in 
New  York  City,  one  of  which  was  a  branch  of 
the  Bank  of  the  United  States,  the  sentiment 
was  so  hostile  to  banking  that  Aaron  Burr  was 
only  able  to  procure  a  charter  for  the  Manhat- 
tan Company  by  subterfuge.  Its  banking  privi- 
lege was  concealed  in  an  Act  which  ostensibly 
authorized  the  formation  of  a  company  to  fur- 
nish the  city  with  water. 

J  "  History  of  the  People  of  the  United  States." 


CHAPTER  X. 

NEW   YOEK THE    STOCK   EXCHANGE    OF   TO-DAY. 

THE  war  and  the  expanding  railway  system 
developed  the  Stock  Exchange,  bring- 
ing it  into  a  national  and  international  promi- 
nence that  it  had  never  before  enjoyed.  The 
growth  of  this  institution  into  its  present  com- 
manding position  has  been  within  twenty-five 
years. 

Up  to  1865  the  Stock  Exchange  was  a 
nomad.  From  the  button-wood  tree  in  Wall 
Street  in  1792  and  the  Tontine  Coffee-House, 
on  the  corner  of  Wall  and  Water  Streets  to  47 
Wall  Street,  thence  to  the  corner  of  Wall  and 
William  in  1827,  to  Beaver  Street  in  1854,  the 
Exchange  finally  made  its  way  to  its  present 
habitat  in  1865. 

The  building  has  since  been  several  times  en- 
larged, but  it  is  not  yet  up  to  the  requirements 
of  an  institution  of  its  varied  and  enormous  in- 
terests. It  faces  on  New  Street  and  Broad, 
with  a  wing  on  Wall  Street.      The  main  Board 

73 


74  New  York. 

Room  is  141  feet  by  145  in  the  widest  and 
longest  parts,  with  a  ceiling  varying  from  62  to 
80  feet  in  height,  a  gallery  for  spectators  being 
located  on  the  north  and  south  side  of  the  main 
hall,  which  has  an  area  of  13,700  square  feet. 

The  number  of  members  has  several  times 
been  extended,  until  it  reached  its  present  limit 
of  1,099,  at  an  increasing  cost  of  initiation,  rising 
from  $25.00  in  1823  to  an  average  of  $13,000, 
at  which  forty  "seats"  sold,  in  1879.  The 
present  value  of  membership,  or  "  seats "  in 
Wall-Street  vernacular,  is  about  $25,000,  which 
is  $7,500  less  than  the  price  they  sold  at  six 
years  ago.  "  Seats  "  now  can  only  be  obtained 
by  purchase  from  retiring  members,  as  the  Ex- 
change has  none  for  sale,  and  therefore  their 
value  fluctuates  with  the  demand  and  supply. 

There  is  a  life  insurance  of  $10,000  attached 
to  each  membership,  and  the  insurance  system 
is  on  the  mutual  plan  of  an  assessment  for 
each  death.  This  has  served  as  a  model  for 
other  Exchanges  which  have  adopted  the 
same  principle,  but  it  is  not  a  natural  function 
and  is  in  a  measure  inequitable.  No  person 
with  any  pronounced  physical  disability  can 
become  a  member,  which  often  works  an  in- 
justice both  to  the  applicant  and  the  Exchange, 


THE   NEW   YORK    STOCK    EXCHANGE,  BROAD    STREET. 


&p"  OF  THB 

[WVEESI 


The  Stock  Exchange  of  To- Day.  75 

as  the  man  might  be  a  very  valuable  acquisi- 
tion from  a  business,  if  not  from  an  insurance, 
point  of  view.  This  restriction  subordinates 
considerations  of  finance  to  those  of  health, 
which  is  essentially  wrong.  Besides,  within  the 
limit  of  age  permissible  a  young  man  pays 
equally  as  much  as  the  older  man,  which  is  con- 
trary to  the  law  governing  life-insurance  poli- 
cies. Those  who  wish  to  provide  for  their  fam- 
ilies could  do  so  through  the  regular  channels 
of  life-insurance  companies.  The  ten  thousand 
dollars  payable  upon  the  death  of  a  member  do 
not  go  to  his  creditors,  if  he  have  any,  but  to 
such  a  beneficiary  as  he  may  select  or  may  be 
in  the  line  of  direct  inheritance.  It  would  be 
more  within  the  province  of  an  Exchange  to 
accumulate  a  reserve  fund  by  contributions  pro- 
portionate to  transactions,  to  insure  against 
losses  from  failures  in  the  Exchange.  The 
principal  objections  to  this  would  be  that  such 
a  tax  would  disclose  the  volume  of  each  per- 
son's business,  and  that  it  would  tend  to  the 
indulgence  of  weak  brokers.  There  is  no 
more  reason  why  an  Exchange  should  insure 
lives  than  why  it  should  furnish  coal  to  its 
members. 

In  1864  the  Gold  Exchange  was  organized,  and 


j6  New  York. 

from  that  time  till  the  famous  Black  Friday  in 
1869  an  immense  speculation  in  gold  was  con- 
ducted; but  the  blowing  and  bursting  of  the 
bubble  in  that  year  destroyed  outside  specula- 
tion in  gold.  As  the  approaching  resumption 
of  specie  payment  robbed  gold  of  its  premium, 
the  old  Gold  Room  closed  up  in  1877,  and 
its  members  went  into  the  Srock  Exchange,  car- 
rying with  them  the  remnants  of  their  business. 
The  mania  for  speculation  at  this  time  in  stocks 
and  gold  was  so  strong  that  business  began  on 
the  curbstone  just  after  breakfast,  continuing 
"  after  hours "  until  dark,  to  be  resumed  again 
up-town  in  the  Fifth  Avenue  Hotel  at  night. 
This  irregular  trading  grew  to  be  such  an  evil 
that  it  was  finally  suppressed  by  the  down-town 
Exchanges. 

In  1863  an  opposition  Stock  Exchange,  called 
the  "Open  Board  of  Brokers,"  arose  and  by 
popular  methods  and  tireless  energy  it  grew 
into  a  position  of  equality  with  the  old  body. 

Henry  Clews,  in  his  recent  work  on  "  Twenty- 
Eight  Years  in  Wall  Street,"  thus  alludes  to 
the    opposition    "  Open   Board   of    Brokers " : 

"  The  membership  began  to  increase  rapidly, 
and  business  accumulated  so  fast,  that  the  Board 
was  soon  enabled  to  take  more  capacious  accom- 


The  Stock  Exchange  of  To- Day,  77 

modations  on  Broad  Street,  contiguous  to  the 
Stock  Exchange.  In  this  menacing  attitude  the 
new  Board  began  to  make  serious  inroads  ou  the 
business  of  the  old  one,  almost  one  half  of 
which  it  had  acquired  by  the  year  1869,  when 
the  old  Board  called  a  truce.  It  was  seen  by 
the  judicious  members  of  the  Board  that  the 
competition  was  likely  to  work  the  ruin  of 
both,  and  amicable  negotiations  were  begun, 
which  culminated  in  consolidation."  When  these 
conflicting  institutions  were  united  and  the  brains 
and  capital  of  the  street  were  concentrated  in  the 
reconstructed  Stock  Exchange,  business  grew  to 
proportions  hardly  dreamed  of  previously. 

Business  in  the  Stock  Exchange  used  to  be 
conducted  by  congregating  the  members  several 
times  a  day  in  the  presence  of  the  Chairman, 
who  "called"  one  stock  after  another  "on  the 
list,"  and  all  those  wishing  to  tracLe  would  do  so 
on  these  "  calls."  Finally  the  business  began  to 
overflow  into  the  intervals  between  the  "  calls," 
and  this  tendency  to  a  continuous  market  be- 
'  came  so  pronounced  that  in  1875  the  Stock 
Exchange  abandoned  u  calls  "  on  active  stocks, 
only  continuing  those  in  bonds  and  unlisted 
securities,  which,  however,  are  more  a  matter  of 
form  than  substance.     The  great  bulk  of   the 


J  8  Nezv  York. 

transactions  are  made  as  orders  come  into  the 
market,  without  reference  to  the  time  of  their 
receipt.  In  the  Consolidated  Exchange,  business 
in  stocks  is  conducted  in  precisely  the  same  way. 
It  has  one  "call"  in  miscellaneous  and  three 
"  calls  "  in  mining  stocks,  but  they  only  cover  a 
small  portion  of  the  business  done  in  these 
specialties.  The  petroleum  market  in  the  Con- 
solidated Exchange  was  for  a  time  the  largest  in 
the  country.  It  now  does  twice  as  much  in  this 
commodity  as  the  Stock  Exchange,  but  since  the 
successful  introduction  of  railway  stocks  into 
the  Consolidated  its  members  have  lost  so  much 
interest  in  the  petroleum  market  that  it  has 
become  a  "  side-show."  Pittsburgh,  which  is 
near  the  newer  petroleum  fields  of  Pennsyl- 
vania, at  this  writing  is  leading  the  New  York, 
Oil  City,  and  Bradford  Exchanges  in  the  magni- 
tude of  its  operations  in  this  commodity. 

The  Government  of  the  Stock  Exchange  is 
vested  in  the  President  and  Treasurer  of  the 
Exchange  and  a  Governing  Committee  of  forty 
members,  who  are  divided  into  four  classes. 
The  first  class  hold  office  for  one  year,  the 
second  for  two  years,  the  third  for  three 
years,  and  the  fourth  for  four  years,  so  that 
rotation  in  office  is  secured  by  an  annual  elec- 


The  Stock  Exchange  of  To-Day.  79 

tion  of  ten  members  to  the  fourth  class  and 
to  fill  any  vacancy  in  the  other  classes.  The 
President,  Treasurer,  Secretary,  Chairman,  and 
Vice-Chairman  of  the  Exchange  are  elected 
annually.  The  President's  office  is  one  of 
honor  without  emolument.  His  duties  are 
not  onerous,  and  are  chiefly  to  preside  over  the 
deliberations  of  the  general  committee.  He  has 
power  to  call  special  meetings  and  ad  interim 
to  appoint  special  committees,  but  he  cannot 
nominate  the  standing  committees,  who  are  ap- 
pointed by  the  Governing  Committee  itself. 
The  hard  work  of  the  Exchange  is  done  by  the 
Secretary,  who  is  not  only  Secretary  of  the 
Exchange  at  large,  but  of  all  sub-committees. 
An  immense  amount  of  work  of  a  complex 
character  passes  through  his  office,  which  is  like 
the  counting-rooms  of  a  commercial  establish- 
ment, and  it  is  but  proper  that  he  should  be,  as 
he  is,  well  paid  for  it.  The  incumbent,  Mr. 
Ely,  is  a  man  of  great  force  and  excellent  ability, 
and  necessarily  himself  a  member  of  the  Ex- 
change. The  Secretary  for  General  Purposes  of 
the  Stock  Exchange  of  London  is,  in  the  same 
way,  the  factotum  of  that  institution. 

The  rate  of  commissions  and  the  mode  of 
closing  out  defaulted  contracts  between  mem- 


80  New  York. 

bers,  the  arbitration  of  disputes,  the  expulsion 
or  suspension  of  offenders,  are  provided  for  by 
the  rules  of  the  association. 

Before  any  securities  can  be  admitted  "  to  the 
list,"  the  companies  issuing  them  must  conform 
to  the  conditions  as  to  titles,  form  of  certificates, 
etc.,  imposed  by  the  Exchange.  The  Exchange 
in  no  way  becomes  responsible,  however,  for 
the  real  value  of  the  properties.  An  "  un- 
listed "  department  is  also  legalized  with  less 
restrictions  than  surround  the  regular  list. 

Purchases  in  the  New  York  Stock  Exchange 
are  usually  made  "  regular  way,"  which  is  always 
understood,  unless  otherwise  stipulated  at  the 
time  a  bid  or  offer  is  made.  This  means  that 
the  stock  or  bonds  so  purchased  are  delivera- 
ble to  the  buyer  between  10  and  2.15  o'clock 
the  next  day.  Since  the  Saturday-Half -Holi- 
day law  went  into  force  in  New  York  State, 
obliging  the  Exchanges  to  close  up  at  midday, 
the  Stock  Exchange  decided  that  the  two  hours 
of  Saturday's  business  were  too  short  to  permit 
the  delivery  of  Fridays  sales,  and  hence  all  the 
business  transacted  on  Friday  and  Saturday,  ex- 
cept when  for  "  cash,"  goes  over  till  Monday. 

Since  an  open  offer  to  buy  or  sell  means 
"regular  way,"  a  broker  to   "get   the  floor" 


The  Stock  Exchange  of  To -Day.  81 

(which  is  a  right  of  precedence  over  his  fellow- 
brokers)  can  offer  his  stock  "buyer  3,"  or  bid 
*'  seller  3."  To  sell  stock  "  buyer  3  "  is  to  give 
the  buyer  the  privilege  of  taking  it  on  the  day 
of  purchase,  or  any  one  of  the  three  following 
days,  without  interest ;  and  likewise  to  sell  it 
"  seller  3  "  gives  to  the  seller  the  privilege  of 
delivering  it  on  the  day  of  purchase,  or  any  one 
of  the  three  following  days,  without  interest. 
"  Buyer  3  "  is  a  shade  lower  and  "  seller  3  "  a 
shade  higher  than  "  regular  way "  when  the 
market  is  in  a  normal  condition.  If  there  is  a 
great  scarcity  of  stock,  "  seller  3  "  is  lower,  be- 
cause the  seller  prefers  to  postpone  the  delivery, 
and  consequently  may  be  willing  to  sell  it  less 
than  "  regular  way "  to  get  the  benefit  of  the 
postponed  delivery ;  and  so  "  buyer  3  "  may  be 
higher  when  stock  is  scarce,  because  the  buyer 
secures  the  right  to  procure  the  certificates  on 
the  day  of  purchase.  These  conditions  are, 
however,  exceptional.  When  certificates  are  very 
scarce  for  delivery,  and  it  is  difficult  to  rely 
upon  borrowing  them,  a  broker  operating  for  a 
fall  in  values  may  sell  "  seller  10  "  (days),  "  sel- 
ler 30,"  or  "  seller  60,"  which  is  the  limit  of 
time  contracts.  Stock  may  be  delivered  at  the 
option  of  the  seller  on  them  at  any  time,  after 


82  New  York, 

one  day's  notice  to  buyer  within  the  time 
they  run.  When  money  is  dear,  or  buyers 
are  not  in  funds  to  purchase  for  prompt  deliv- 
ery, they  occasionally  buy  "buyer  10"  (days), 
"  buyer  30,"  or  "  buyer  60."  Such  contracts 
give  the  buyer  the  right  to  demand  the  stock  at 
any  time  within  the  period  fixed  in  the  contract, 
upon  one  day's  notice.  All  time  contracts  for 
more  than  three  days  carry  interest  at  the  rate 
of  6  per  cent.,  to  be  paid  by  the  buyer. 

The  Stock  Exchange  of  New  York  excels 
others  in  the  accuracy  of  collecting  full  reports 
of  transactions  and  rapidity  in  transmitting 
them  to  the  public.  Yankee  ingenuity  devised 
an  instrument  called  the  "  ticker,"  which  auto- 
matically prints  abbreviated  names  of  stocks, 
with  their  prices,  on  a  narrow  ribbon  of  paper, 
and  the  speed  with  which  they  are  collected  and 
published  is  a  marvel.  The  quotations  are  ob- 
tained by  employes  of  the  Exchange,  usually 
boys  or  young  men,  who  stand  in  the  various 
groups  noting  all  transactions,  which  are  imme- 
diately reported  to  telegraph  offices  on  the  floor. 
They  are  disseminated  instantly  by  two  compa- 
nies, the  Gold  and  Stock  Telegraph  Compa- 
ny, and  the  Commercial  Telegram  Company, 
which  together  let  about  one  thousand  instru- 


The  Stock  Exchange  of  To- Day,  83 

ments  in  New  York  City,  at  the  rate  of  ten  dollars 
per  month.  The  former  company  was  the  original 
one,  and  it  came  into  existence  in  1867,  but  the 
clumsy  instrument  of  that  day  has  been  super- 
seded by  various  improvements  until  now  per- 
fection has  been  attained.  This  company  is  an 
adjunct  of  the  Western  Union,  and  the  Com- 
mercial Telegram  Company  is  a  younger  rival. 
Both  pay  a  handsome  sum  annually  to  the  Ex- 
change for  the  privilege  of  distributing  the 
quotations.  The  Stock  Quotation  Company 
performs  the  same  service  with  equal  success 
for  the  Consolidated  Exchange  of  New  York. 
Not  only  is  the  "ticker"  service  better  here 
than  in  London,  but  the  American  plan  is 
far  superior  to  the  English  in  furnishing  first 
over  these  instruments,  and  later  in  the  printed 
stock  lists,  the  actual  number  of  all  shares  and 
bonds  dealt  in,  with  their  prices.  A  stock 
ticker  in  London  gives  such  bidding  and  asking 
prices  as  may  be  obtained  by  the  representa- 
tives of  the  Exchange  Telegraph  Company  on  the 
floor,  but  since  the  custom  does  not  prevail  there 
to  make  open  bids  and  oifers,  a  large  part  of  the 
quiet  business  between  brokers  and  dealers  es- 
capes the  observation  of  the  persons  engaged  in 
collecting  quotations.     American  dealers  hover 


84  New  York. 

over,  and  intently  watch  the  "  ticker  "  as  it  rap- 
idly unwinds  the  tangled  web  of  financial  fate. 
They  are  therefore  amazed  to  think  how  it  can  be 
possible  that  immense  speculations  are  carried 
on  in  Paris  without  a  "  ticker,"  though  such  is  the 
case.  Some  years  ago  an  attempt  was  made  to 
introduce  the  system  there,  but  the  electricians 
in  charge  were  inefficient,  and  the  service  was 
so  bad  that  it  was  finally  abandoned.  The  offi- 
ces of  the  Agents  de  Change  and  Coulissiers  are 
scattered  throughout  the  city,  and  messengers 
and  telephones  are  the  media  through  which 
fluctuations  are  made  known. 


CHAPTEE  XL 

NEW  YOEK THE  COMMANDING  INFLUENCE  OF  THE 

STOCK  EXCHANGE. 

THE  flood-tide  of  speculation  was  in  the 
years  1879-81,  when  business  was  much 
larger  than  at  any  time  since,  except  during  the 
"  flurry  "  in  December,  1886  when  over  a  million 
shares  changed  hands  in  one  day.  The  total 
number  of  shares  dealt  in  on  the  Stock  Ex- 
change in  1881  was  117,078,167,  against  85,- 
821,027  in  1887.  In  the  earlier  year  London 
was  nothing  like  so  large  a  factor  as  recently, 
and  the  business  then  originated  almost  ex- 
clusively here. 

u  There  were  giants  in  those  days  " — W.  H. 
Vanderbilt,  Gould,  Keene,  Woerrishoifer,  D.  P. 
Morgan,  C.  J.  Osborn,  Henry  K  Smith,  D.  O. 
Mills,  "Joe"  Mills,  W.  K.  Travers,  C.  P.  Hunt- 
ington, Addison  Cammack,  and  others. 

Gould  now  is  almost  entirely  out  of  general 
speculation,  and  devotes  himself  to  the  manage- 
ment of  the  group  of  properties  bearing  his 
generic  name ;  the  younger  Vanderbilts  are  com- 

85 


86  New  York, 

fortable  in  their  fortunes,  with  only  a  moderate 
speculative  disposition ;  D.  O.  Mills  is  largely 
out  of  the  speculative  "  swim  "  ;  D.  P.  Morgan, 
"Joe"  Mills,  Woerrishoffer,  Osborn,  Travers, 
and  W.  H.  Vanderbilt  are  dead ;  Keene  and  H. 
N.  Smith  have  lost  their  money,  and  at  present 
there  is  a  hiatus  in  the  line  of  succession  of 
heavy  operators  and  manipulators. 

J.  Pierpont  Morgan,  of  Messrs.  Drexel,  Mor- 
gan, &  Co.,  is  a  great  negotiator,  with  a  more 
powerful  command  of  capital  than  any  other 
man  in  America.  He  makes  important  deals 
but  is  not  a  manipulator  who  distributes  large 
speculative  orders  to  swell  the  volume  of  busi- 
ness. The  so-called  "  Ohio  crowd,"  composed 
of  such  men  as  General  Samuel  Thomas,  Calvin 
S.  Brice,  J.  G.  Moore,  Jay  O.  Moss,  J.  II.  Inman, 
and  their  Southern  following,  are  equipped  for 
speculative  leadership  if  they  care  to  exercise 
their  talents.  The  "  Rockefeller  crowd  "  with 
Standard  Oil  money  are  valuable  mainstays  to  the 
market  when  bargains  are  really  offering.  They 
are  among  the  most  solidly  and  commercially 
successful  men  who  ever  entered  Wall  Street. 
George  J.  Gould  and  "  Eddie  "  Gould,  as  he  is 
familiarly  called,  sons  of  Jay  Gould,  will  inherit 
capital  and  a  taste  for  speculation,  but  it  usually 


Commanding  Influence  of  the  Stock  Exchange,  Sy 

happens  that  the  boldest  and  most  influential 
operators  are  those  who  have  risen  by  their  own 
individual  exertions.  The  "  Chicago  crowd," 
with  Philip  D.  Armour,  Norman  B.  Ream,  and 
N.  S.  Jones  as  leaders,  divide  their  attention  be- 
tween breadstuffs  and  provisions  in  Chicago 
and  railway  stocks  in  New  York.  They  are  par- 
ticularly accustomed  to  speculation  in  what  are 
called  the  "  Granger  stocks,"  concerning  which 
they  have  excellent  means  of  information.  They 
are  dashing  operators,  and  often  attract  a  fol- 
lowing by  radical  expressions  of  opinion.  They 
are  optimists  and  pessimists  by  turn,  and  really 
are  very  able  and  successful  operators.  B.  P. 
Hutchinson,  of  Chicago,  the  king  of  Western 
speculators,  has  so  far  not  undertaken  any  bold 
operations  in  stocks.  Addison  Cammack  is  the 
"  Ursa  Major  "  of  the  stock-market.  He  is  not 
so  powerful  a  factor  as  when  his  boon-com- 
panion, Woerrishoffer,  led  the  way  in  campaigns 
that  eclipsed  any  previous  "  bear "  operations 
known  in  Wall  Street.  Mr.  Cammack  does  not 
attempt  to  propagate  his  views,  seeking  rather 
to  discover  the  moment  for  a  natural  reaction  in 
a  rising  market  for  the  purpose  of  attacking  it 
by  heavy  "short"  sales.  If  he  mistakes  the 
temper  of  speculation  he  is  not  apt  to  fight  it. 


88  New  York. 

Since  it  is  easier  to  excite  hopeful  rather  than 
despondent  anticipations  of  the  course  of  prices, 
it  is  much  easier  for  a  "bull"  than  a  "bear" 
leader  to  inspire  public  support.  The  "bear" 
in  some  quarters  is  looked  upon  as  a  wrecker  of 
other  people's  properties,  which  may  sometimes 
be  partially  true  if  he  resort  to  wicked  false- 
hoods concerning  them.  But  merely  to  detect 
the  shadows  which  financial  events  cast  before 
and  operate  upon  this  judgment  is  not  essentially 
an  injustice  to  any  man.  The  "  bull "  may 
exaggerate  the  facts  relating  to  a  property  in  a 
manner  equally  as  inimical  to  the  public  as  the 
"bear"  who  predicts  disaster.  Predictions  of 
trouble  to  come  may  avert  its  occurrence  by 
timely  warning. 

There  are  a  number  of  men  in  Wall  Street, 
such  as  T.  W.  Pearsall,  S.  V.  White,  Russell  Sage, 
W.  E.  Connor,  A.  E.  Bateman,  Frank  Work, 
Brayton  Ives,  and  Henry  Villard,  who  are 
widely  known  in  connection  with  its  affairs. 
The  Stock  Exchange  has  a  score  of  room- 
traders  who,  in  the  absence  of  any  pronounced 
movement,  can  swing  the  pendulum  of  prices 
between  the  extremes  of  moderate  weakness  and 
moderate  strength ;  but  the  great  movements 
ever  rest  on  intrinsic  conditions,  to  which  all 


Commanding  Influence  of  the  Stock  Exchange.  89 

alike  must  bend,  and  which  the  most  remarkably 
successful  men  are  the  first  to  discern  and  press 
upon  public  attention.  Great  leaders  will  not 
resist  the  current,  but  go  with  it,  pulling  others 
along  by  force  of  their  intellect  and  courage, 
allied,  perhaps,  with  a  personal  magnetism 
which  attaches  men  to  their  cause.  The  mass 
of  securities  has  become  so  great  that  it  takes 
an  enormous  influence  or  capital  to  do  more 
than  make  an  eddy  in  the  stream  of  speculation, 
but  young  men  with  ability,  ambition,  and  fresh 
blood  are  coming  to  the  front  and  in  time  will 
no  doubt  supply  the  places  left  vacant  by 
former  Titanic  operators. 

The  Stock  Exchange  to-day  is  the  fore- 
most exchange  in  the  United  States  in  point 
of  wealth,  ability,  and  extended  connections. 
All  the  great  banking  houses  aod  railroad  stock 
operators  are  allied  to  it,  and  though  some 
of  its  members  are  merely  rich  men's  sons,  and 
others  are  rather  unprogressive,  it  is  composed 
of  men  of  the  highest  order  of  intelligence, 
sagacity,  and  integrity.  Its  members  embrace 
some  of  the  most  gifted  men  in  letters,  politics, 
and  society  in  this  country.  Wall  Street  men 
are  proverbially  generous,  quick-witted,  and 
liberal.      They  are  not  narrow-minded,  and  the 


90  New  York, 

mental  vision  of  those  who  are  successful  ex- 
tends to  the  remotest  ends  of  the  earth.  They 
maintain  the  highest  standard  of  honor,  and 
agreements  made  between  themselves  in  the 
confusing  bedlam  of  excited  markets  are  as 
faithfully  observed  as  if  surrounded  by  all  the 
safeguards  of  written  contracts. 

There  are,  no  doubt,  in  Wall  Street,  as  else- 
where, many  men  whose  smartness  is  but  another 
name  for  rascality,  and  others  whose  saintliness 
cloaks  contemptible  hypocrisy,  but  when  in 
their  dealings  they  betray  these  vices  they  are 
branded  with  obloquy  and  driven  from  the 
street  by  the  pressure  of  outraged  opinion.  The 
race  for  wealth  is  a  fierce  one,  rivalry  is  intense, 
and  the  keenest  minds  in  the  country  compete 
for  the  prizes,  but  the  honest  intention  of  ful- 
filling all  contracts  is  the  sine  qua  non  of  tolera- 
tion in  the  financial  tournament. 

Though  the  trade  of  Wall  Street  is  in  money, 
it  is  very  rarely  seen  there,  as  checks,  bills  of 
exchange,  and  credits  perform  all  the  functions 
of  the  real  article.  It  is  only  in  times  of  dis- 
trust that  massive  vaults  fly  open  to  expose 
their  treasures  of  specie  and  currency :  otherwise 
money  in  Wall  Street  is  like  faith,  "the  sub- 
stance of  things  hoped  for  and  the  evidence  of 
things  not  seen." 


Commanding  Influence  of  the  Stock  Exchange,  9 1 

During  the  Civil  War  Wall-Street  men  were 
noted  for  their  patriotism,  and  when  Secretary 
Chase  was  in  sore  straits  for  funds  to  conduct 
the  war  at  a  very  critical  period,  bankers  and 
brokers  in  New  York  took  the  then  discredited 
bonds  of  the  government,  and  by  their  confi- 
dence set  an  example  to  capital,  at  home  and 
abroad,  that  enabled  the  Treasury  to  market 
bonds  which  hitherto  had  no  credit.  All 
honor,  then,  to  the  Associated  Banks  and  to  the 
Stock  Exchange  of  New  York  for  their  timely 
aid  and  assistance  during  the  darkest  days  of 
the  Rebellion  ! 

Stock-Exchange  men  and  bankers,  as  the  rep- 
resentatives of  values  in  all  sections  of  the 
country,  must  necessarily  take  a  deep  interest  in 
the  prosperity  and  harmony  of  all.  Those  peo- 
ple who  suspect  the  motives  of  Wall  Street,  es- 
pecially when  financial  legislation  is  proposed, 
are  victims  of  a  silly  prejudice.  Finance  is  not 
a  fixed  science  in  all  its  aspects,  but  experience 
has  taught  many  lessons  which  should  be 
heeded  to  avoid  unfortunate  results,  and  those 
who  study  the  phenomena  of  financial  laws 
and  customs  should  be  accorded  a  friendly 
hearing  by  law-makers.  The  silver  question, 
for  instance,  has  within  it  the  germs  of  se- 
rious mischief.      The  coinage  of,  say  seventy- 


92  New  York. 

five  cents'  worth  of  silver  bullion  into  what  the 
fiat  of  law  pronounces  to  be  the  equivalent  of 
a  given  number  of  grains  of  gold  which  pass 
current  throughout  the  world  for  one  hundred 
cents,  is  an  arbitrary  exercise  of  legislative 
authority  which  is  harmless  just  so  long  as  the 
equality  of  these  two  kinds  of  specie  is  not 
brought  to  a  test.  So  far  the  government, 
while  reserving  the  right  to  pay  its  obligations 
in  silver,  has  maintained  gold  redemption.  If 
any  thing  should  occur,  however,  to  cause  a 
drain  of  gold  from  this  country,  which  specu- 
lators 'might  artificially  intensify,  and  the 
Treasury  should  voluntarily  or  compulsorily 
exercise  its  option  of  paying  in  silver,  and  if 
that  silver,  by  reason  of  a  scarcity  of  gold, 
were  not  exchangeable  for  it  in  the  open  money 
market  on  equal  terms  by  its  recipient,  who 
had  drawn  it  from  the  Treasury  for  export  pur- 
poses, the  country  would  at  that  moment  be 
precipitated  into  a  panic.  Gresham's  law  is  in- 
exorable, "a  poorer  drives  out  a  better  cur- 
rency." On  such  topics  as  this  the  Stock 
Exchange  and  banking  interests  of  the  country 
should  be  listened  to  with  a  respect  due  to  their 
knowledge  and  experience. 

The  Stock  Exchange  of  New  York  up  to  the 


Commanding  Influence  of  the  Stock  Exchange.  93 

present  time  has  been  essentially  an  American 
institution,  for  the  securities  dealt  in  are  almost 
wholly  domestic.  Compared  with  the  great  for- 
eign Exchanges  it  is  provincial,  but  this  naturally 
arises  from  the  unexampled  opportunities  in  this 
country  for  the  employment  of  capital.  When 
we  have  opened  our  mines,  completely  grid- 
ironed  our  territory  with  railways,  brought  all 
our  farming  lands  under  cultivation,  and  fully 
equipped  our  manufacturing  industries,  Amer- 
ican capital  will  then  migrate  to  foreign  parts, 
and  our  Stock  Exchanges  will  become  a  ready 
market  for  the  shares,  stocks,  and  debentures  of 
remote  regions.  Money  is  becoming  redundant 
in  New  York,  and  frequently,  and  for  long 
periods,  our  interest  rate  is  lower  than  in 
European  centres,  while  the  credit  of  our  gov- 
ernment is  so  high  that  the  net  interest  obtain- 
able on  United  States  bonds  is  now  lower 
than  on  British  Consols  or  French  rentes. 

It  will  not  be  too  much  of  a  stretch  of  the 
imagination  to  conceive  of  the  New  York  Stock 
Exchange  dealing  in  the  bonds  of:  foreign  gov- 
ernments before  many  years.  In  another  direc- 
tion its  scope  should  expand,  namely,  in  the 
shares  of  industrial  enterprises.  Hitherto  the 
shares  of  transporting  companies  have  occupied 


94  New  York. 

the  field  to  the  practical  exclusion  of  those  of 
manufacturing  and  producing  companies.  Here 
is  a  wide  field  for  future  growth.  The  American 
who  contemplates  his  country's  capacity  to  pro- 
duce can  hardly  fail  to  anticipate  that  its 
triumphs  in  material  greatness  will  eclipse  the 
highest  achievements  of  England,  which  is  now 
the  workshop,  the  banker,  and  the  Clearing 
House  for  the  world.  There  are  more  plums 
in  the  American  than  in  the  proverbially  rich 
English  pudding. 


CHAPTER  XII. 

TECHNICAL    TERMS    OF    STOCK   EXCHANGES. 

EVERY  vocation  has  its  characteristic 
words,  phrases,  and  slang  which  dic- 
tionaries do  not  clearly  define,  and  Wall  Street 
business  is  no  exception  to  the  rule. 

In  the  United  States  a  "  bull "  is  one  who 
expects  prices  to  go  higher,  and  a  "  bear  "  is  one 
who  expects  them  to  go  lower.  With  us  a 
"  bull "  or  a  "  bear  "  may  be  so  only  in  opinion, 
whence  the  adjectives  "  bullish  "  and  "  bearish  " ; 
vvhereas  in  England,  when  it  is  said  that  a  per- 
son is  a  "  bull  of  "  a  certain  security,  it  implies 
that  he  owns  it,  or  is  "long  of  n  it,  in  Wall-Street 
parlance.  So  when  he  is  operating  for  a  fall  in 
prices,  he  is  said  to  be  a  "  bear  of  "  the  market, 
which  with  us  is  equivalent  to  the  phrase, 
"  short  of "  it.  To  buy  one  stock  and  sell 
another  with  the  expectation  that  the  one 
bought  will  advance  and  the  one  sold  will  de- 
cline, is  a  u  hedge."  The  broker's  charge  for  his 
services  is  called  a  "  commission,"  which  in  the 

95 


96       Technical  Terms  of  Stock  Exchanges, 

New  York  Stock  Exchange  is  one  eighth  of  one 
per  cent,  each  way  on  the  par  value  of  the  se- 
curity purchased  or  sold.  A  bid  or  an  offer  of 
securities  in  the  New  York  Stock  Exchange, 
when  the  amount  wanted  is  not  stated  to  the 
contrary,  means  one  hundred  shares  of  stock,  or 
ten  bonds  of  $1,000  each  par  value. 

A  "  point  "  means  one  dollar  on  one  hundred, 
or  one  per  cent,  on  the  par  value  of  a  stock  or 
bond.  This  word  sometimes  also  means  a  hint 
or  a  word  of  advice  to  buy  or  to  sell  a  certain 
security,  otherwise  expressed  by  the  word  "  tip." 

"  Stock  privileges,",  as  they  are  termed,  are 
extensively  dealt  in  abroad,  and,  previous  to 
the  "Wall-Street  panic  of  1884,  a  great  many 
of  them  were  issued  here.  They  proved  to 
be  an  expensive  luxury  to  their  makers  at 
that  time,  and  were,  moreover,  discredited  by 
the  failure  of  one  of  the  largest  issuers  of 
them.  They  are  now  far  less  popular  and 
common,  but  something  will  always  be  done 
in  them.  They  are  commonly  known  as  "  puts 
and  calls."  A  "  put "  is  an  agreement  in 
the  form  of  a  written  or  a  printed  contract 
filled  out  to  suit  the  case,  whereby  the 
signer  of  it  agrees  to  accept  upon  one  day's 
notice,  except  on  the  day  of  expiration,  a  certain 


Technical  Terms  of  Stock  Exchanges,      97 

number  of  shares  of  a  given  stock  at  a  stipu- 
lated price.  A  "call"  is  the  reverse  of  the 
"  put,"  giving  its  owner  the  right  to  demand  the 
stock  under  the  same  conditions.  A  "  spread  " 
is  a  combination  of  the  two.  A  "  straddle  "  is 
when  the  holder  has  the  privilege  of  either 
"  putting  "  or  "  calling  "  the  stock,  at  the  same 
price.  This  kind  of  business  may  be  used  as  a 
means  of  speculation  by  persons  of  slender 
means  who  are  willing  to  pay  a  few  hundred 
dollars  to  some  operator  for  the  privilege  of  de- 
livering a  certain  number  of  shares  of  stock  at  a 
price  below  the  current  market,  or  for  the  privi- 
lege of  demanding  the  stock  within  a  certain 
period  at  a  price  above  that  prevailing  at  the 
time.  A  "  put "  may  also  serve  as  an  insurance 
to  an  investor  against  a  radical  decline  in  the 
value  of  stocks  he  owns,  or  a  "  call "  may  be 
purchased  by  a  man  of  means  whose  property 
is  not  immediately  available,  but  who  may  de- 
sire to  be  placed  in  a  position  to  procure  the 
shares  at  the  "  call "  price,  if  they  are  not  below 
that  in  the  open  market  when  he  comes  into  funds. 
If,  at  the  expiration  of  the  time  fixed  in  these 
privileges,  there  is  no  profit  apparent  to  the 
purchaser  of  them,  he  simply  allows  them  to 
lapse.  The  marche  a  prime,  or  market  in  "  puts  " 

&  0?  THE  *** 


98       Technical  Terms  of  Stock  Exchanges, 

and  u  calls,"  is  larger  in  Paris  than  elsewhere,  and 
at  the  settlement  period  a  time  is  set  aside  for 
holders  to  elect  whether  they  will  exercise  the 
options  which  they  have  purchased.  In  fact, 
the  proceedings  of  the  Agents  de  Change  are 
arrested  for  five  minutes  at  that  period  for  the 
reponse  des  primes. 

A  "  margin  "  is  the  money  placed  by  a  client, 
the  principal,  in  the  hands  of  the  broker,  his 
agent,  as  a  guaranty  against  loss  to  the  broker. 
This  is  necessary,  for  a  broker  who  goes  into 
any  of  the  Exchanges  does  not  "  give  up  "  his 
principal's  name,  unless  that  principal  happens 
to  be  a  member  of  the  same  Exchange,  and 
wishes  it  done.  It  therefore  follows  that 
neither  of  two  brokers  making  a  trade  can  be 
relieved  from  the  fulfilment  of  the  contract  be- 
cause his  client  failed  to  protect  him.  Thus, 
while  commission  brokers  are  really  agents  for 
others,  in  the  Exchange  they  stand  in  the 
mutual  relationship  of  principals  to  each  other. 
The  margin  not  only  is  necessary  as  a  protection 
to  them  that  their  principals  will  not  saddle 
losses  upon  them  by  being  unable  or  indisposed 
to  make  good  any  differences  incurred  by 
the  brokers  on  their  account,  but  it  is  also 
necessary    to   assist    the    brokers    in    carrying 


Technical  Terms  of  Stock  Exchanges.      99 

stocks  purchased.  A  margin  is  merely  a  partial 
payment,  but  a  broker  buying  stock  for  a  client 
on  margin  is  compelled  to  wholly  pay  for  the 
stock.  If  he  lack  funds  to  pay  for  this  stock 
out  of  his  own  pocket  he  can  borrow  money 
from  banks  or  money-lenders,  pledging  the  stock 
as  collateral  security.  Usually,  however,  he 
cannot  obtain  over  80  per  cent,  of  its  value 
from  the  money-lenders,  so  that  if  he  has  only  a 
10-per-cent.  margin  from  his  client,  he  must 
furnish  the  other  10  per  cent,  out  of  his  own 
means.  In  Wall  Street,  brokers,  as  a  rule,  exact 
margins,  which  the  English  call  "  cover,"  at  the 
time  an  order  is  received  or  executed  ;  whereas, 
in  London,  this  custom  is  less  observed,  and  the 
element  of  credit  enters  more  largely  into  their 
mode  of  conducting  the  business.  Where  the 
credit  of  the  client  in  London  is  established,  his 
broker  does  not,  ordinarily,  call  on  him  for  any 
cash  until  the  arrival  of  the  next  "settlement 
day." 

A  "  bear  "  who  sells  a  stock  "  short  "  must  de- 
liver it  to  the  buyer.  In  order  that  he  may  do 
so  he  must  borrow  the  certificates  from  some 
holder,  giving  to  the  holder  in  exchange  for  the 
certificates  their  money  value  as  indicated  by  the 
current  quotations,  to  be  returned  upon  the  re- 


ioo     Technical  Terms  of  Stock  Exchanges. 

delivery  of  the  certificates.  The  object  of  the 
holder  loaning  his  stock  to  the  borrower  is  either 
to  save  some  interest,  or  save  putting  up  large 
margins  on  the  stock  with  a  money-lender. 
"  Bears  "  rely  on  their  ability  always  to  procure 
certificates  for  delivery  against  their  "short" 
sales,  but  it  sometimes  happens  that  so  many 
actual  owners  demand  their  certificates  simul- 
taneously that  the  "bears"  are  only  able  to 
obtain  the  continued  use  of  the  certificates  by 
paying  a  considerable  bonus  to  the  real  owner. 
This  is  a  "  squeeze." 

There  have  been  in  Wall  Street  several  noted 
instances  where  a  person  or  a  clique  purchased 
and  contracted  to  receive  more  shares  in  a  given 
company  than  were  outstanding.  When  this 
concentrated  interest  suddenly  called  on  the 
"  shorts  "  to  return  the  borrowed  certificates,  the 
peril  of  their  position  was  disclosed,  and  they 
found  themselves  at  the  mercy  of  the  rightful 
owners  of  the  stock,  who  were  able,  arbitrarily, 
to  fix  a  price  at  which  the  li  shorts  "  might  buy 
certificates  necessary  to  make  their  deliveries. 
This  is  a  "  corner."  Happily  it  is  of  rare  oc- 
currence, and  experience  has  demonstrated  that 
it  usually  results  to  the  ultimate  disadvantage 
of  those  who  engineered  it.    The  reason  for  this 


Technical  Terms  of  Stock  Exchanges,    101 

is  that  any  stock  which  invites  a  large  "  short " 
interest  is  generally  not  of  the  most  valuable 
character,  and  the  fact  that  it  has  just  been  "  cor- 
nered," and  is  all  owned  by  a  set  of  speculators, 
causes  dealers  to  avoid  it.  Thus  the  origina- 
tors of  the  "  corner  "  have  left  upon  their  hands 
a  lot  of  non- marketable  stock. 

A  "  syndicate  "  is  a  party  of  capitalists  who 
unite  their  means  to  accomplish  some  financial 
object,  such  as  the  purchase  of  a  property,  a 
public  loan,  an  issue  of  bonds  or  stocks,  the 
reorganization  of  a  company,  consolidation  of 
interests,  etc. 

A  "  pool,"  in  the  vocabulary  of  the  Exchange, 
is  similar  to  a  syndicate,  in  so  far  as  it  means 
placing  the  funds  of  individuals  in  a  common 
undertaking  for  a  common  purpose,  but  it  flavors 
more  of  the  speculative  idea.  A  "  pool "  is 
usually  an  agreement  among  a  coterie  of  opera- 
tors to  buy  or  sell  a  certain  security  and  manip- 
ulate it.  It  may  be  either  a  bull  or  bear  pool. 
A  "  bob-tailed  pool "  is  a  small  one,  by  which  a 
few  operators,  acting  in  concert,  but  with  little 
cash,  try  to  make  a  turn  in  the  market.  A 
"  blind  pool "  is  one  in  which  the  capital  con- 
tributed is  put  in  by  different  persons,  to  be 
managed  by  one  who  buys  and  sells  at  his  own 


102     Technical  Terms  of  Stock  Exchanges. 

pleasure,  without  consultation  with  or  giving 
information  to  his  associates  in  interest. 

A  "  boom,"  and  a  "  panic  "  are  the  Scylla  and 
Charybdis  of  speculation.  The  former  is  an 
expansion  of  credit  and  an  inflation  of  value  to 
an  inordinate  degree.  Visionary  schemes  are 
floated  during  such  periods  of  fictitious  pros- 
perity. This  high  tension  of  speculation  is  of- 
ten followed  by  a  "  panic  "  in  stocks,  which  is 
an  unreasonable  fright  among  speculators  and 
investors,  leading  to  precipitate  sales  and  a 
general  collapse  of  credit  and  values.  It  is 
usually  followed  by  a  period  of  dulness  and 
depression. 

A  "flurry"  is  a  diminutive  panic  or  a  specu- 
lative gust  that  upsets  prices  for  the  moment,  in 
some  isolated  market,  or  a  single  species  of 
property,  but  does  not  extend  to  general  values. 
Being  sporadic  it  soon  passes  away  without 
widespread  damage. 

"  Kite-flying  "  is  to  do  business  on  an  unsafe 
principle  and  without  adequate  capital,  while 
"  ballooning  "  is  to  inflate  prices  to  the  propor- 
tions of  a  bubble  or  a  point  of  insecurity. 

A  "  flyer "  is  a  small  speculative  venture 
made,  often  as  much  for  amusement  as  for 
profit,  by  a  person  not  accustomed  to  speculate 


Technical  Terms  of  Stock  Exchanges.    103 

much,  who  wishes  to  make  a  quick  turn  in  the 
market. 

A  "  lamb "  is  a  person  without  financial  in- 
formation or  knowledge  of  the  ways  of  the 
Street,  and  therefore  a  ready  victim  of  news- 
paper points  and  hearsay  gossip  about  the 
market.  He  is,  in  the  characteristic  speech  of  a 
mining  camp,  what  would  be  called  a  "tender- 
foot." 

A  "  new  Tennessee  "  is  the  name  applied  to 
a  new  member,  who  is  usually  hazed  by  his 
fellow-members  when  he  first  ventures  in  the 
Board  Room.  Occasionally  a  stranger  eludes 
the  door-keeper  and  finds  his  way  on  the  floor, 
from  which  he  is  usually  hustled  out  in  a  very 
unceremonious,  though  good-natured,  manner. 

A  "room  trader"  is  a  member  of  the  Ex- 
change who  trades  on  his  own  account,  either 
on  a  large  or  small  scale.  He  is  not  an  in- 
vestor, but  a  speculator,  who  may  operate  for  a 
fractional  profit  or  loss,  or  may  let  his  profits  or 
losses  run  for  several  points.  He  necessarily 
possesses  the  faculty  of  getting  in  and  out  of 
the  market  suddenly,  and  of  changing  his  views 
with  great  celerity.  To  succeed  he  must  be 
gifted  with  the  ability  to  catch  the  momentary 
drift  of  sentiment  and  values. 


104     Technical  Terms  of  Stock  Exchanges. 

A  "scalper"  is  a  species  of  "room  trader," 
who  will  either  sell  at  the  offering  price  or  buy 
at  the  bidding  price,  with  the  intention  of  un- 
doing the  transaction  or  closing  out  at  a  very 
small  loss  or  profit.  He  is  not  supposed  to  have 
any  opinions  as  to  what  the  future  course  of 
prices  will  be,  and  rarely  ever  goes  home  at 
night  with  any  interest  in  the  market. 

The  rules  of  the  Exchanges  of  New  York 
forbid  trading  after  the  Exchanges  close,  but  in 
times  of  great  financial  excitement  business  over- 
flows into  the  streets  and  hotel  lobbies  and  is 
called  trading  "  on  the  curb."  In  the  Stock  Ex- 
change of  London  many  brokers  in  American 
shares  congregate  in  an  open  area  to  deal  in 
"  Americans  "  after  the  official  close,  often  until 
as  late  as  7  or  8  o'clock  in  the  evening,  or  as 
long  as  prices  come  in  from  New  York.  Those 
who  are  not  members  of  any  regular  Exchange 
and  make  a  business  of  selling  "puts"  and 
"calls,"  or  unlisted  securities,  on  the  street,  are 
called  "  curbstone  brokers." 

When  a  security  is  dealt  in  on  two  or  more 
Exchanges,  a  class  of  brokers  devote  themselves 
to  a  business  called  "  arbitrage,"  which  is  buy- 
ing in  one  market  and  selling  in  another  when 
variations  permit  it  to  be  done  with  a  chance  of 


Technical  Terms  of  Stock  Exchanges.    105 

profit.  This  levels  prices  and  establishes  a  parity 
of  values  between  distant  markets.  These  per- 
sons are  called  "  arbitrageurs,"  a  word  invented 
for  brokers'  use  by  adding  a  German  termina- 
tion to  the  French  word  arbitrage. 

A  "wash"  sale  is  a  fictitious  transaction 
made  by  two  members  of  an  Exchange,  acting 
in  collusion,  for  the  purpose  of  swelling  the  vol- 
ume of  apparent  business  in  a  security,  or  by 
"  washing  "  it  up  or  down  in  the  absence  of  any 
outside  orders,  to  give  a  false  impression  of  its 
strength  or  weakness.  Members  engaged  in  this 
reprehensible  practice  are  subject  to  suspension. 
When  a  manipulator  wishes  to  attract  atten- 
tion to  a  certain  stock  he  often  resorts  to  what 
are  known  as  "Cross  orders."  This  means  a 
distribution  of  both  buying  and  selling  orders, 
in  such  a  way  that  prices  shall  be  either  worked 
up  or  down  without  the  manipulator  losing  or 
accumulating  much  of  the  security  in  question. 
It  is  a  legitimate  and  bolder  way  of  accomplish- 
ing what  is  undertaken  by  brokers  who  make 
"  wash  "  sales. 

Stocks  sell  "  dividend  on  "  between  the  time 
the  dividend  is  declared  and  the  day  the  books 
of  the  company  close  for  transfer;  after  that 
they  sell  "ex-dividend,"  which  means  that  the 


106     Technical  Terms  of  Stock  Exchanges. 

dividend  does  not  go  to  the  buyer.  When  a 
company's  directors  meet  at  the  time  a  dividend 
is  declarable,  and  they  decide  not  to  declare  it, 
the  company  is  said  to  "  pass  the  dividend." 

A  "  stop  order "  is  an  order  given  to  buy  or 
sell  at  the  best  price  possible  after  a  security 
reaches  a  certain  price,  either  up  or  down  as  the 
case  may  be.  It  is  usually  given  to  stop  a  loss, 
whence  its  name ;  but  it  sometimes  is  used  for 
the  purpose  of  following  up  one's  position  in 
the  market  on  a  plan  of  averaging.  An  "  open 
order  "  is  good  till  countermanded,  but  in  com- 
mon usage  is  written  "  G.  T.  C,"  which  is  as 
well  understood  as  the  abbreviations  "  C.  O.  D." 


CHAPTER  XIII. 

NEW       YOEK THE       CONSOLIDATED       STOCK       AND 

PETROLEUM    EXCHANGE ITS    ORIGIN   AND 

GROWTH. 

SAN  FRANCISCO  twelve  to  fifteen  years 
ago  was  the  scene  of  a  remarkable  mining 
speculation,  which  centred  in  the  Stock  Ex- 
change of  that  city.  Memberships  in  that  in- 
stitution at  one  time  commanded  about  $40,000, 
and  the  public  at  large  were  crazed  with  the 
mania  to  buy  mining  shares.  The  extraordinary 
deposit  of  gold  and  silver  in  the  Comstock  lode, 
under  Virginia  City,  Nevada,  opened  the  eyes 
and  stimulated  the  avarice  of  people  who,  as  we 
have  seen,  are  all  alike  in  the  passion  for  acquir- 
ing sudden  wealth.  The  echo  of  this  Western 
excitement  was  heard  in  the  East,  and  the  New 
York  Mining  Stock  Exchange,  with  an  initial 
membership  of  twenty-five  men,  was  established 
in  1875.  Upon  the  discovery  of  the  treasures 
of  Leadville  and  other  Colorado  districts,  an- 
other Exchange,  called  the  American   Mining 

107 


io8  New  York. 

Stock  Exchange,  was  organized  in  1880 
by  Californians,  who  found  the  interest  of 
the  public,  in  San  Francisco,  waning  with  the 
decadence  of  the  Comstock.  The  New  York 
Mining  Stock  Exchange  grew  in  numbers  and 
influence,  being  largely  composed  of  members  of 
the  New  York  Stock  Exchange,  and  the  rivalry 
between  it  and  the  American  Exchange  was 
finally  ended  in  1880  by  the  dissolution  of  the 
latter,  and  the  transfer  of  its  principal  remain- 
ing members  into  the  New  York  Mining  Stock 
Exchange. 

Mining  speculation  in  New  York  for  a  few 
years  was  active,  and  a  very  large  proportion  of 
business  men  were  in  some  way  interested  in 
mining  properties,  but  in  the  majority  of  in- 
stances the  results  were  unsatisfactory,  if  not 
disastrous.  The  rapid  decline  in  the  popularity 
of  mining  stocks  rendered  it  necessary  for  this 
Exchange  to  discover  some  new  branch  of  busi- 
ness to  occupy  the  energy  and  capital  of  its 
members.  This  was  found  in  petroleum,  which 
commodity  possessed  a  great  many  elements  to 
commend  it  to  the  favor  of  a  speculative  con- 
stituency. The  old  Petroleum  Exchange,  organ- 
ized in  1877,  in  very  humble  quarters,  increased 
its  membership  to   six    hundred,  moving  into 


THE   NEW    YORK   CONSOLIDATED    STOCK    EXCHANGE.      BROADWAY. 


Y^  OF  THR^^ 

;UFI7BRSIT7] 


The  Consolidated  Exchange.  1 09 

more  imposing  rooms ;  a  new  Petroleum  Ex- 
change, partly  a  secession  from  the  old,  was 
created  with  a  membership  of  five  hundred, 
under  the  name  of  the  National  Petroleum  Ex- 
change; and  about  simultaneously  with  this, 
dealings  in  petroleum  were  inaugurated  on  the 
Mining  Exchange,  which  then  had  four  hun- 
dred and  seventy  members.  Here  we  have  by 
the  year  1882  three  Exchanges,  relying  chiefly 
for  the  employment  of  their  members  on  pe- 
troleum speculation,  which  was  manifestly  an 
abnormal  and  transitory  condition.  Finally  the 
National  Exchange  was  consolidated  with  the 
Mining  Exchange  in  June,  1883  ;  in  November 
one  hundred  picked  men  from  an  "  Open  Board  " 
of  brokers  were  attached,  and  in  1885  the  joint 
organization  absorbed  the  Petroleum  Exchange. 

The  fusion  of  these  various  interests,  with 
some  additional  issues  of  memberships,  into  one 
institution,  then  and  since  known  as  the  Consoli- 
dated Stock  and  Petroleum  Exchange,  was  like 
the  union  of  disjointed  railway  lines  into  a 
single  and  compact  system. 

Prior  to  the  final  consolidation,  the  New 
York  Petroleum  Exchange  and  Stock  Board  and 
the  New  York  Mining  Stock  and  National  Petro- 
leum Exchange,  as  they  were  then  called,  had 


1 1  o  New  York, 

each  undertaken  to  deal  in  the  same  railway- 
stocks  which  were  bought  and  sold  on  the  New 
York  Stock  Exchange.  This  decision  natu- 
rally led  to  action  by  the  Stock  Exchange  pro- 
hibiting its  members  from  remaining  in  and 
aiding  and  abetting  either  of  these  aspirants. 
When  the  consolidation  was  perfected,  and  the 
membership  of  2,403,  its  present  number,  got 
into  working  order,  a  gradual  growth  in  the 
volume  of  its  transactions  in  railway  shares 
began,  which  has  continued  to  the  present 
time. 

Not  satisfied  with  its  inadequate  quarters  in 
Nos.  60  and  62  Broadway,  the  Exchange  re- 
solved to  erect  a  new  and  commodious  structure, 
having  funds  in  its  treasury  ample  to  pay  for  it 
outright.  Its  present  splendid  building  was 
begun  in  May,  1887,  and  completed  in  May, 
1888.  It  covers  58,  60,  and  62  Broadway,  facing 
on  Broadway,  New  Street,  and  Exchange  Place. 
The  Board  Room  is  132  feet  in  length  and  90 
feet  in  breadth  in  the  longest  and  widest  parts. 
The  floor  area  is  about  11,000  square  feet,  and 
better  lighted  and  aired  than  the  Stock  Ex- 
change. 

While  out  of  its  own  building,  in  a  half -base- 
ment, dingy  and  cramped,  it  passed  its  critical 


The  Consolidated  Exchange.  1 1 1 

stage,  when  its  surroundings  lent  neither  credit 
nor  dignity  to  its  reputation.  During  all 
this  time  it  was  sustained  by  an  esprit  du 
corps  that  has  welded  it  together  in  the  bonds 
of  common  interest.  It  stands  with  reference 
to  the  New  York  Stock  Exchange  somewhat  in 
the  same  relations  that  the  Coulisse  does  to  the 
Parquet  in  the  Paris  Bourse.  Both  maintain 
parallel  markets,  with  high-priced  memberships 
in  one  against  low-priced  or  no-priced  seats  in 
the  other.  Commissions  in  the  Coulisse  of 
Paris  and  in  the  Consolidated  in  New  York 
are  likewise  customarily  only  half  those  in  the 
older  institutions. 

Young  men  with  limited  capital,  but  with 
active  habits,  are  common  both  to  the  Coulisse 
and  the  Consolidated.  Both  are  more  given  to 
speculative  shares  than  to  investment  securities, 
and  both  trade  "  for  the  account,"  with  Clearing- 
House  arrangements  and  deliveries  of  only  the 
balance  of  stocks  after  the  period  of  counter- 
transactions,  which  covers  one  week  in  New 
York  and  two  weeks  in  Paris.  As  compared 
with  transactions  in  other  kinds  of  business,  a 
delivery  of  securities  on  the  day  following  their 
purchase,  is  needlessly  hurried.  The  Consoli- 
dated Exchange  compromised  between  the  plan 


1 1 2  New  York. 

of  daily  deliveries  on  the  other  American  Ex- 
changes and  the  fortnightly  deliveries  in  the 
European  markets.  The  Consolidated  Exchange 
has  a  limited  and  incomplete  bond  market ;  its 
business  chiefly  runs  into  speculative  railway 
shares,  petroleum,  and  mining  stocks.  Its  suc- 
cess in  establishing  an  ample  market  in  railway 
shares  may  be  measured  by  the  fact  that  the 
volume  of  its  transactions  in  some  active  stocks 
equals  and  occasionally  exceeds  those  of  the 
Stock  Exchange,  and  its  aggregate  sales  of  the 
entire  list  are  from  fifty  to  sixty  per  cent,  as 
large.  The  business  in  stocks  on  the  Consoli- 
dated Exchange  is  from  two  to  three  times  the 
proportions  of  the  combined  transactions  of  the 
Boston,  Philadelphia,  and  Baltimore  Stock  Ex- 
changes. 

It  is  true  that  it  is  not  so  independent  and 
original  a  market  as  the  Stock  Exchange  of 
New  York,  and  also  that  it  is  influenced  by 
the  operations  of  the  latter,  which  really  fix 
the  value  of  railroad  property  in  the  United 
States. 

The  characteristics  of  the  Consolidated  which 
have  aided  its  growth  are  free  trade  in  commis- 
sions, trading  "for  the  account,"  a  Clearing 
House,  open  relations  with  the  public,  who  can 


The  Consolidated  Exchange.  113 

get  nearer  to  their  brokers  than  in  any  other 
Exchange,  and  admirable  management. 

The  Consolidated  Exchange  confers  large 
authority  upon  its  President,  who  receives  a 
salary.  Mr.  Wilson,  who  has  occupied  this  post 
for  several  years,  has  contributed  largely  to  the 
success  of  the  institution  by  prudent,  diplomatic, 
and  energetic  action.  A  Governing  Committee 
of  forty-two  corresponds  to  such  bodies  in  all 
other  Exchanges. 

The  Consolidated  Exchange  has  a  large 
Gratuity  Fund,  and  it  pays  eight  thousand 
dollars  upon  the  death  of  each  member,  the 
money  being  obtained  by  a  per  capita  assess- 
ment of  four  dollars. 


CHAPTER  XIV. 

NEW    YORK METHODS   OF   BUSINESS   ON  THE    CON- 
SOLIDATED   EXCHANGE. 

THE  London  and  Paris  stock  Clearing-House 
system,  as  we  have  seen,  is  a  distinct 
economy  of  capital  and  labor,  but  it  has,  in  the 
eyes  of  American  brokers,  a  fatal  defect,  pointed 
out  in  Chapter  VII.,  viz.,  the  inability  to  pair 
off  and  close  outstanding  contracts  and  call  for 
margins  to  protect  them  prior  to  the  day  of 
monthly  or  fortnightly  settlement. 

The  Consolidated  Exchange  of  New  York 
boasts,  with  reason,  of  employing  a  superior 
system.  Under  the  Consolidated  plan,  transac- 
tions made  through  the  week  must  be  closed  on 
the  Monday  following,  when  a  delivery  is  made 
to  a  broker  of  all  stocks  bought  by  him  during 
the  preceding  week  over  and  above  all  his  sales 
of  the  same  stock.  While,  in  London,  all  his 
transactions  would  remain  open  for  the  entire 
"  account "  period,  in  the  Consolidated  Exchange, 
in  New  York,  only  such  go  over  to  the  Monday 

114 


Methods  of  Business  on  the  Consolidated.   1 1 5 

settlement  as  have  not  been  eliminated  by 
counter  transactions.  The  latter  are  paired  off 
each  day  upon  payment  or  receipt  of  the  differ- 
ence through  the  Clearing  House  on  the  follow- 
ing day.  To  illustrate  :  suppose  a  broker,  on  a 
Wednesday,  should  buy  five  hundred  shares  of 
Lake  Shore  at  104  and  sell  five  hundred  at  105, 
thus  making  five  hundred  dollars,  he  would  put 
in  the  Clearing  House  that  evening  a  sheet 
giving  in  detail  the  number  of  shares,  prices, 
amount  carried  out,  and  names  of  brokers  to 
whom  he  had  sold  and  from  whom  he  had 
bought,  bringing  down  on  this  sheet  figures 
showing  shares  even  and  dollars,  five  hundred, 
to  his  credit.  This  sheet,  combined  with  all 
the  other  sheets  in  the  hands  of  the  Clearing- 
House  clerks,  enables  them  to  bring  together 
the  ultimate  buyers  and  sellers  of  that  stock 
on  that  day,  and  out  of  some  of  them  to  receive 
the  five  hundred  dollars  made  by  this  specu- 
lation. The  Fourth  National  Bank  of  New 
York,  which  is  the  custodian  of  the  money 
during  the  morning  of  clearance,  will  then  pay 
to  the  broker  five  hundred  dollars,  which  the 
Clearing  House  will  certify  is  due  him  upon  a 
balancing  of  that  day's  business. 

Here  we  see  the  economy  of  avoiding  the  re- 


n6  New  York. 

ceipt  of  the  five  hundred  shares  which,  per- 
chance, he  bought  from  five  different  brokers, 
involving,  as  it  would,  five  checks  of  $10,400 
each  on  his  bank,  and  the  delivery  of  the  same 
shares  to  the  five  buyers,  which  would  require 
five  checks  of  $10,500  each  from  them.  The 
Clearing  House  eliminates  all  this  expense, 
trouble,  and  risk,  and  saves  the  bank  from 
over-certification,  and  the  expense  of  entering  in 
their  books  the  deposits  and  numerous  checks. 

If  the  broker  had  bought  one  hundred  ad- 
ditional shares  Lake  Shore  at  104,  of  which  he 
remained  "  long,"  intending  to  take  up  the  cer- 
tificate the  next  Monday,  he  would  have  put  in 
his  sheet  showing  the  above,  and  also  that  one 
hundred  shares  of  Lake  Shore  were  due  to  him 
at  the  common  settling  price  fixed  by  the  Clear- 
ing House  for  that  stock  on  that  day.  If  this 
price  happened  to  be  104,  he  would  receive  from 
the  Clearing  House  on  the  following  morning  an 
order  on  the  Fourth  National  Bank  for  five 
hundred  dollars,  his  profit  on  the  purchase  and 
sale  first  above  referred  to.  He  would  not  get 
the  stock,  of  course,  until  the  following  Mon- 
day, but  meantime  some  one  would  necessarily 
be  apparently  short  of  the  one  hundred  shares, 
and  the  Clearing  House  would  furnish  him  the 


Methods  of  Business  on  the  Consolidated.   1 1 7 

name  of  some  such  person,  unless  he  had  him- 
self found  some  one  on  the  other  side  of  the 
market  to  whom  he  had  loaned  it. 

Provision  is  made  that  either  has  the  privi- 
lege of  calling  up  ten  per  cent,  margin,  with 
thirty  minutes'  grace  to  procure  it,  and  with  the 
penalty,  in  the  default  of  the  deposit  of  the  re- 
quired funds  with  the  chairman  of  the  Exchange 
or  some  trust  company,  of  the  defaulter  being 
closed  out  "  under  the  rule."  This  is  the  buy- 
ing in  of  short  stock  or  selling  out  of  long  stock 
by  the  chairman,  who  assembles  the  members 
present,  selling  at  the  highest  bid  or  buying  at 
the  lowest  offer,  the  number  of  shares  in  ques- 
tion. The  person  who  supplies  the  chairman 
with  the  stock  or  takes  it  from  him  puts  himself 
in  place  of  the  defaulter,  at  the  difference  in 
price.  The  defaulter  is  allowed  twenty-four 
hours  to  meet  his  obligations,  and  failure  to 
settle  within  that  time  involves  his  suspension. 
If  he  settles  his  debt  later  he  must  apply  for  re- 
election upon  presenting  proof  of  the  discharge 
of  his  debt.  If  he  fail  to  pay  within  a  year  his 
membership  is  sold,  and  its  proceeds  are  applied- 
pro  rata  among  his  creditors  on  the  Exchange. 
The  law  cannot  compel  a  division  of  the  pro- 
ceeds of  his  membership  among  outside  creditors, 


1 1 8  New  York. 

until  his  debts  within  the  Exchange  are  all 
satisfied. 

This  latter  process  of  calling  for  margins  and 
closing  out  defaulters  is  identical  with  the  rule 
on  the  New  York  Stock  Exchange. 

A  year  ago  or  more  the  New  York  Stock 
Exchange  introduced  a  Clearing  House  and  a 
system  of  trading  "  for  the  account/'  but  as  it 
was  not  compulsory,  and  as  it  was  impracticable 
to  conduct  cash  and  time  trading  on  terms  of 
equality,  and  as  it  did  not  receive  generous  sup- 
port, it  was  shortly  abandoned.  Whether  it 
adopts  the  time-contract  principle,  which,  with 
the  limitation  of  only  a  week's  duration,  per- 
mits traders  to  "  turn  around "  in  the  market 
without  tying  up  stocks  too  long,  it  is  not 
hazarding  much  to  say  that  the  Stock  Ex- 
change is  very  sure  finally  to  use  the  machinery 
of  a  Clearing  House  for  daily  settlements  in  ac- 
tive stocks.  The  one  argument  urged  against  it 
is  that  the  operations  of  large  houses  might  be 
disclosed  to  the  Clearing  House,  but  this  is  not 
tenable.  What  is  openly  done  by  their  repre- 
sentatives on  "the  floor"  is  observed,  and  it 
would  not  betray  the  origin  of  such  orders 
any  more  if  their  representatives  cleared  the 
stocks  through  a  Clearing  House,  than  if  set- 


Methods  of  Business  on  the  Consolidated,   1 1 9 

tied  by  them  as  at  present  by  private  manual 
delivery. 

"  The  proof  of  the  pudding  is  in  the  eating," 
and  the  London,  Paris,  and  all  the  Continental 
Exchanges  use  the  Clearing-House  machinery 
and  trading  "  for  the  account."  One  step  in  the 
direction  indicated  is  the  agreement  entered 
into  among  about  forty  prominent  houses  of 
the  New  York  Stock  Exchange  to  clear  all 
their  transactions  with  each  other  through  the 
Manhattan  Trust  Company.  This  principle  is 
bound  to  prevail. 


CHAPTER  XV. 

THE    SO-CALLED    BUCKET-SHOPS. 

THE  Stock  and  all  other  Exchanges  of  this 
country  have  a  parasite  in  the  so-called 
"  bucket-shop  "  which  covers  the  land  with  a 
speculative  mildew.  It  has  discredited  the 
legitimate  business  of  regularly  constituted  Ex- 
changes in  the  eyes  of  people,  especially  in  the 
smaller  communities,  who  form  their  ideas  of 
real  market-places  from  the  character  of  these 
gambling  houses.  No  doubt  many  an  innocent 
critic  inveighs  against  Exchanges  and  their 
members,  because  he  imagines  the  "bucket-shop" 
is  a  section  of  the  Exchange,  and  a  miniature 
brokerage  office.  This  parasite  is  indigenous 
to  the  United  States,  and  happily  its  ravages 
abroad  are  relatively  light. 

A  broker,  it  matters  not  whether  in  stocks, 
grain,  cotton,  real  estate,  insurance,  or  shipping, 
is  an  agent.  His  interest  and  that  of  his 
principal  are  identical.  In  a  Stock  Exchange, 
for    example,    he    meets    other    brokers,    and 

1 20 


Bucket-  Shops.  121 

through  the  collision  of  orders  and  opinions, 
arising  from  operations  of  speculators  and  in- 
vestors, news  and  events,  sympathy  with  the 
dealings  in  other  Exchanges,  etc.,  a  series  of 
prices  is  established.  These  quotations  go  to  the 
"  bucket-shop  "  keeper,  who  exhibits  them  to  his 
speculative  visitors.  In  effect  he  says  to  them: 
"  The  markets  in  the  various  Exchanges  are  in 
progress ;  they  will  fluctuate.  If  you  wish  to 
wager  that  they  wiH  go  up,  name  the  amount  of 
money  you  will  bet  on  this,  and  I  will  take  it, 
limiting  your  possible  loss  to  that  sum.  If  you 
wish  to  do  the  reverse  I  am  likewise  willing. 
Put  up  the  stakes  with  me,  and  give  me  a  com- 
mission on  the  bet,  and  we  will  await  the  result." 
Here  his  interest  is  diametrically  opposed  to 
that  of  the  "  customer  "  and  if  he  should  happen 
to  be  a  man  of  easy  morals,  the  quotations  and 
information  furnished  might  be  qualified  to 
suit  the  case. 

Betting  on  what  the  price  of  a  stock  will 
be  when  the  persons  making  the  bet  do  noth- 
ing except  to  guess  what  others  through  their 
negotiations  will  make  it,  is  as  unadulterated 
gambling  as  betting  on  which  horse  will  win 
a  race.  When  a  client  buys  a  stock  through  a 
broker,  thinking  that  it  will  advance,  as  when 


1 2  2  Bucket-  Shops, 

he  buys  a  cargo  of  flour  because  lie  thinks  the 
wheat  crop  is  short  and  that  it  will  go  higher, 
he  takes  his  position  commercially  in  the  mar- 
ket, contributing  by  the  act  of  his  purchase  to 
bring  about  the  very  result  expected.  He  re- 
lieves somebody  of  the  stock  or  the  flour.  When, 
however,  he,  as  a  third  person,  merely  puts  up 
his  money  on  what  other  persons,  solely  and 
without  his  intervention  in  the  article  dealt  in, 
will  do,  he  is  as  far  outside  the  pale  of  com- 
merce as  if  he  bets  on  the  throw  of  dice.  The  Ex- 
changes have  tried  to  suppress  "  bucket-shops  " 
by  appeals  to  law  and  legislation,  but,  by  some 
strange  obliquity  of  mental  vision,  those  who 
alone  can  give  relief  do  not  seem  to  see  the 
vicious  nature  of  this  financial  pest.  There  is 
hardly  a  town  in  the  land  but  what  has,  or  has 
had,  a  shop  of  this  description.  They  are  finan- 
cial nomads,  changing  their  firm  names  and 
habitat  to  suit  their  pecuniary  exigencies.  They 
belong  to  no  association,  are  accountable  to  no 
authority,  and  the  sums  they  owe  confiding  cus- 
tomers are  generally  too  small  to  justify  an 
appeal  to  law ;  besides,  many  patrons  would  not 
like  to  advertise  their  dealings. 

The  "  bucket-shop "   keeper   exhibits  to  his 
visitors  the  current   quotations  of   some  regu- 


Bucket-  Shops.  1 2  3 

larly  conducted  Exchange,  and  if  the  patron  of 
the  shop  thinks  that  the  members  of  that  Ex- 
change will  buy  enough  Western  Union,  for  in- 
stance, to  advance  its  price,  he  deposits,  we  will 
say,  ten  dollars  with  the  cashier  of  the  "  bucket- 
shop,"  and  "  buys  "  ten  shares  of  Western  Union 
at  85  from  its  keeper,  who  stands  ready  either  to 
buy  or  sell,  on  the  latest  quotations,  at  the  pleas- 
ure of  the  patron.  Here  a  margin  of  one  per 
cent,  is  put  up,  and  unless  otherwise  stipulated, 
if  the  stock  in  the  market  on  which  they  are 
betting  goes  down  to  84J  or  84-J-  (depending  on 
the  "  commission "  charged),  the  patron's  mar- 
gin is  exhausted  and  the  game  closed. 

Sometimes,  if  the  standing  of  the  patron  is 
known,  the  "  bucket-shop  "  keeper  will  let  the 
loss  run  against  the  customer  a  point  or  so  more, 
upon  an  agreement  by  the  patron  to  "  protect  " 
the  trade.  If  the  market  goes  in  his  favor,  he 
can  "  close  out "  the  contracts  when  he  chooses, 
and  then  the  "  bucket-shop  "  will  owe  him  the 
margin  originally  deposited  and  the  profit  made. 

There  are  thousands  of  these  "  bucket-shops " 
in  the  country,  and  many  of  them  are  in  small 
towns  where  there  is  no  legitimate  speculative 
or  investment  business  in  stocks,  and  where  no 
legitimate  broker   could  bring   quotations  and 


124  Bucket- Shops. 

thrive.  In  these  places  "  bucket-shops  "  furnish 
the  excitement  and  diversion  of  gaming  houses 
in  the  larger  cities,  which  would  not  be  tolerated 
in  smaller  communities. 

The  keeper  of  them  could  not  afford  to  hire 
a  special  wire  to  procure  quotations  from  a  dis- 
tant Exchange,  and  he  probably  might  not  dare 
to  assume  the  risks  of  "  taking  the  trades  "  of 
his  patrons.  Bolder  and  more  enterprising  men 
often  lease  private  wires  between  the  larger 
cities,  sub-let  loops  to  way  places,  forward  quo- 
tations over  them,  and  in  return  expect  the  "  or- 
ders "  picked  up  by  these  retail  offices.  Some 
of  these  larger  "  bucket-shop  "  concerns  are  be- 
lieved to  have  made  money,  partly  by  profits  on 
leased  wires,  partly  on  commissions  charged,  and 
largely  on  the  fact  that  the  majority  of  small 
and  poorly  informed  speculators  lose  money, 
which  of  course  is  a  net  gain  to  the  "  bucket- 
shop."     It  is  betting  against  the  "  bank." 

Unsophisticated  "  lambs  "  are  usually  willing 
to  accept  small  profits,  and  let  their  losses  run 
as  long  as  they  have  ready  money  to  protect 
their  position,  and  it  is  this  unfortunate  method 
of  speculation  which  enriches  the  "bucket- 
shop." 

It  cannot  be  expected   that  "  bucket-shop " 


Bucket-  Shops,  125 

keepers  will  give  their  patrons  any  valuable  or 
disinterested  information  or  advice,  for  the  two 
parties  stand  in  opposition  to  each  other. 

It  is  also  believed  that  the  larger  "  bucket- 
shops  "  sometimes  employ  brokers  on  the  regu- 
lar Exchanges  to  make  sudden  raids  or  rallies  in 
certain  stocks,  at  opportune  times,  to  obliterate 
the  margins  of  their  patrons. 

A  "  bucket-shop  "  business  is  a  poor  counter- 
feit of  real  Stock  Exchange  business,  and  it 
ought  to  be  suppressed,  as  it  is  not  conducted 
on  legitimate  commercial  principles.  It  is  a 
cancerous  growth  on  a  healthy  body. 


'V**  of  ras*"**^ 

kUsri7ERsixr] 


